In the wake of new tax guidance (IRS Notice 2023‑63 + recent PwC insights), software licensing just got more #tax‑savvy—and complex. Here’s your fast‑track guide to navigating the maze.
1. #CapitalizeNotDeduct
- Post‑2021, U.S. tax law (IRC §174) requires mandatory capitalization of R&D costs—including software dev—for 5 years domestically or 15 years offshore
- This means planning, coding, QA, UX design, and deployments are no longer immediately deductible—get ready to amortize instead.
2. ⚖️ #KnowTheLine: Dev vs Usage
- Capitalize costs related to building software before it’s ready for sale or license
- Not capitalized: marketing, distribution, training, support, maintenance after release.
- Bottom line: tag your costs—dev vs go‑live.
3. #ContractorConundrum
- Payments to third‑party developers also fall under §174 if:
- They bear risk, or
- They retain rights/exploit IP
- Tip 💡: Structure contracts so vendors are fully at risk and don’t keep IP rights—helps preserve deductions today.
4. #DropAndKeepAmortizing
- Even if you sell or retire R&D assets, you still must continue amortizing. No big deduction at the point of sale
- If you’re merging or liquidating, successor rule may apply—but partnerships are excluded .
5. #GuidepostsToFollow
- Follow Rev Proc 2000‑50 for guidance on what counts as software dev
- IRS Notice 2023‑63 (effective post‑Sept 8 2023) gives official rulings on capitalization
✅ #TopTakeaways
| Challenge | Pro Tip |
|---|---|
| #BudgetShock from amortization | Tag R&D costs early—track domestic vs offshore. |
| #ContractPuzzle with freelancers | Write contracts so provider bears risk & no IP rights remain. |
| #PostSaleTrap still amortizing | Plan sales/liquidations with tax transitions in mind. |
🚨 #CallToAction
- Audit your software spend: Identify dev vs ops costs.
- Revise contracts: Shift risk, assign rights smartly.
- Consult your tax adviser: Leverage Rev Proc and tax credits (§41!).
Let’s turn this tax twist into an innovation win. 💡
Share your #TaxWins or questions below 👇
For deeper insight, check out PwC’s and IRS’s full memos—knowledge is your #TaxPower.