About Section 174

Section 174, the tax regulation introduced in 1954, serves as the rulebook for businesses navigating the deduction landscape for research and experimental (R&E) expenditures. In the past, businesses could immediately deduct their research and development expenses, promoting active engagement in R&D activities for performance improvement and product development.

Recent updates, however, have injected a dose of complexity into the narrative. Effective after December 31, 2021, businesses are now required to amortize all R&D expenses over five years. This amortization period extends to 15 years when expenses are associated with foreign research initiatives.

Understanding Section 174 Calculator

For the purposes of estimation, our calculator assumes:
1. Revenue, expenses, and estimated percentage of expenses for R&D purposes is the same for each year
2. All R&D expenses qualifies for the R&D tax credit
3. R&D tax credit rate of 10%
4. Salary is 80% of total R&D expenses to calculate the payroll tax impact
5. Payroll tax percentage of 7.65%

How can Gusto help?

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Navigate the regulatory landscape

We’ll provide the guidance you need to better understand section 174, offering clarity in the face of uncertainty and helping you stay on the right side of tax legislation.

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Turn tax challenges into opportunities

Let Gusto be your trusted companion, simplifying section 174 complexities and assisting you in claiming those valuable R&D tax credits.

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Be your partner in tax credits

You don’t need to go through this journey alone. We will guide you through every step of the way to ensure you understand the best way to approach this new legislation.

What are the next steps?

Use the Section 174 calculator above to see how the new laws may impact your tax liability. Then, log into your Gusto account to start the R&D tax credit process to help with your cash flow. 

To find out if you can claim this credit, all we need is some basic business information—it should only take 5 minutes. If eligible, you may be able to offset income taxes, or apply your credit directly to your payroll taxes each quarter.

Gusto’s approach to helping tax professionals understand the nuances of R&D tax credits and Section 174 and giving us insights to pass to our clients is what makes them a valuable partner.

Common Section 174 questions

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