| Publication 535 |
2001 Tax Year |
Research & Experimental Costs
The costs of research and experimentation are generally capital
expenses. However, you can choose to deduct these costs as a current
business expense.
For information on amortizing these costs, see Research and
Experimental Costs in chapter 9.
Research and experimental costs defined.
Research and experimental costs are reasonable costs you incur in
your trade or business for activities intended to provide information
that would eliminate uncertainty about the development or improvement
of a product. Uncertainty exists if the information available to you
does not establish how to develop or improve a product or the
appropriate design of a product. Whether costs qualify as research and
experimental costs depends on the nature of the activity to which the
costs relate rather than on the nature of the product or improvement
being developed or the level of technological advancement.
The costs of obtaining a patent, including attorneys' fees paid or
incurred in making and perfecting a patent application, are research
and experimental costs. However, costs paid or incurred to obtain
another's patent are not research and experimental costs.
Product.
The term "product" includes any of the following items.
- Formula.
- Invention.
- Patent.
- Pilot model.
- Process.
- Technique.
- Property similar to the items listed above.
It also includes products used by you in your trade or business
or held for sale, lease, or license.
Costs not included.
Research and experimental costs do not include expenses for any of
the following activities.
- Advertising or promotions.
- Consumer surveys.
- Efficiency surveys.
- Management studies.
- Quality control testing.
- Research in connection with literary, historical, or similar
projects.
- The acquisition of another's patent, model, production, or
process.
When and how to choose.
Generally, you can make the choice to deduct these costs only in
the first year you incur research and experimental costs.
You choose to deduct research and experimental costs, rather than
capitalize them, by deducting them on your tax return for the year in
which you first incur research and experimental costs.
| IF you . .
. |
THEN . .
. |
| Deduct research and experimental
costs as a current business expense, |
Deduct all research and
experimental costs for the year of choice and all later
years. |
| Do not deduct research and
experimental costs as a current business expense, |
Amortize them over at least 60
months, starting with the month you first receive an economic benefit
from the research. |
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