Federal R&D Tax Credit Services for Engineering-Driven Companies
We help software, aerospace, manufacturing, AI, and technology companies identify, document, and defend federal R&D tax credits under Internal Revenue Code Section 41 through a CPA-led, flat-fee advisory model.
What Is Section 174?
Section 174 of the Internal Revenue Code governs how businesses treat research and experimental expenditures for tax purposes.
Historically, businesses could immediately deduct qualified research expenses in the year they were incurred.
Beginning with tax years after December 31, 2021, companies are now generally required to capitalize and amortize these costs over multiple years rather than deducting them immediately.
This change has created significant tax implications for innovation-driven businesses.
Why Section 174 Matters
For many technology companies, Section 174 has become one of the most significant tax changes in recent years.
The capitalization requirement can result in:
- Higher taxable income
- Increased federal tax liability
- Reduced cash flow
- More complex tax reporting requirements
- Additional accounting and compliance burdens
Many software and engineering companies have experienced unexpected tax obligations as a result of these changes.
Section 174 vs R&D Tax Credit
One of the biggest misconceptions is assuming Section 174 and the R&D tax credit are the same thing.
They are related but serve very different purposes.
Category | Section 174 | Section 41 R&D Credit |
Purpose | Expense capitalization rules | Tax incentive |
Required? | Yes | Optional |
Benefit Type | Expense treatment | Tax credit |
Applies To | Broad R&D activities | Qualified research activities |
IRS Focus | Expense allocation | Credit qualification |
Many companies are subject to both simultaneously.
Driving Growth Through Strategic Clarity
Which Expenses Fall Under Section 174?
Software Development Cost
Engineering Payroll
Contractor Costs
Prototype Cost
Cloud Infrastructure Costs
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Common Section 174 Challenges
Identifying Eligible Costs
Many companies struggle to determine which expenses fall within Section 174.
Allocation Across Teams
Engineering personnel often split time between qualifying and non-qualifying activities.
Documentation Requirements
Proper documentation is critical for defensibility.
Software Development Complexity
Modern software organizations often have highly integrated development teams that complicate cost allocation.
Multi-State Operations
Remote engineering teams create additional complexity.
Our Section 174 Calculation Process
At our company, every project begins with a deep understanding of your unique needs. We believe that a successful partnership is built on transparent communication, collaborative innovation, and a methodical approach that transforms challenges into measurable results.
Discovery Call
Expense Identification
Cost Allocation
Amortization Calculation
Documentation Preparation
Flat fee vs. contingency pricing
Two common ways R&D credit studies get priced — and why the structure you choose affects far more than the invoice.
| Category | Flat fee model | Contingency model |
|---|---|---|
| Pricing predictability | Yes | No |
| Fee increases with credit size | No | Yes |
| Alignment around defensibility | High | Variable |
| Long-term cost efficiency | High | Lower |
| Upfront cost | Higher | Lower |
Most federal studies are completed for a flat fee of approximately $10,000, allowing clients to retain the full value of increasing credits as they scale.
Section 174 has become highly technical and requires specialized knowledge.
We understand software development lifecycles and engineering organizations.
Led by a California and Nevada CPA with advanced tax specialization.
We work directly with finance and engineering teams throughout the engagement.
Quarterly check-ins help simplify future compliance.
FAQ
Is Section 174 mandatory?
Yes. For companies with qualifying expenditures, compliance is generally required.
Does software development fall under Section 174?
Yes. Software development is one of the most common areas impacted.
Is Section 174 the same as the R&D tax credit?
No. Section 174 governs expense treatment while the R&D tax credit provides incentives.
Can companies claim the R&D credit and comply with Section 174 simultaneously?
Yes. Many companies are affected by both.
Has Section 174 been repealed?
As of today, the capitalization requirements remain in effect, although legislative proposals continue to be discussed.
Expert Strategies, Industry Trends & Real Results
Find Out Whether Your Company Qualifies
Schedule a discovery call to determine eligibility and receive a preliminary estimate of your opportunity.