I think people are misinformed about how to deal with 174. That said, yes, a repeal would be a good idea. Hopefully that happens through BBB in the next month or two.
You do not have to amortize 100% of your engineering costs. Not even close.
Here's the key:
Development costs incurred to remove uncertainty are amortized.
All other costs are deductible during the tax year where they are incurred.
How does this work?
You are going to design a new robot arm.
In January, you spend $100K to "remove uncertainty". In rough strokes, this means discovering all the things you don't know and need to know for this robot arm to become a product. This amount will be amortized over five years under 174.
Now, with uncertainty removed, you spend an additional $1.1MM from January until December for engineering implementation. No uncertainty being removed. Just building a product. This is 100% deductible that tax year.
Analogy: You want to build a new brick wall with specific properties. You spend $100K to develop a new type of brick and $1.1MM to build the wall using that brick. The $100K is amortized, the $1.1MM is deductible in one shot.
BTW, at year 6 the amortization schedule reaches steady-state and you are amortizing the full $100K every year. In other words, the impact of 174, if treated intelligently, is the time value of money until steady state is reached for the engineering costs incurred to remove uncertainty.
You do not have to amortize 100% of your engineering costs. Not even close.
Here's the key:
How does this work?You are going to design a new robot arm.
In January, you spend $100K to "remove uncertainty". In rough strokes, this means discovering all the things you don't know and need to know for this robot arm to become a product. This amount will be amortized over five years under 174.
Now, with uncertainty removed, you spend an additional $1.1MM from January until December for engineering implementation. No uncertainty being removed. Just building a product. This is 100% deductible that tax year.
Analogy: You want to build a new brick wall with specific properties. You spend $100K to develop a new type of brick and $1.1MM to build the wall using that brick. The $100K is amortized, the $1.1MM is deductible in one shot.
BTW, at year 6 the amortization schedule reaches steady-state and you are amortizing the full $100K every year. In other words, the impact of 174, if treated intelligently, is the time value of money until steady state is reached for the engineering costs incurred to remove uncertainty.
That said, I hope the BBB repeals this.
https://www.law.cornell.edu/cfr/text/26/1.174-2