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IRS.gov Website
Publication 535
taxmap/pubs/p535-028.htm#en_us_publink1000208875

Research and Experimental Costs(p22)

rule
The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.
If you meet certain requirements, you may elect to defer and amortize research and experimental costs. For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8.
taxmap/pubs/p535-028.htm#en_us_publink1000208876

Research and experimental costs defined.(p23)

rule
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.
taxmap/pubs/p535-028.htm#en_us_publink1000208877
Product.(p23)
The term "product" includes any of the following items. It also includes products used by you in your trade or business or held for sale, lease, or license.
taxmap/pubs/p535-028.htm#en_us_publink1000208878
Costs not included.(p23)
Research and experimental costs do not include expenses for any of the following activities.
taxmap/pubs/p535-028.htm#en_us_publink1000208879

When and how to elect.(p23)

rule
You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS.
taxmap/pubs/p535-028.htm#en_us_publink100026597

Research credit.(p23)

rule
If you pay or incur qualified research expenses, you may be able to take the research credit. For more information, see Form 6765 and its instructions.
taxmap/pubs/p535-028.htm#en_us_publink100052919

Payroll tax credit. (p23)

rule
The payroll tax credit is an annual election made by a qualified small business specifying the amount of research credit, not to exceed $250,000, that may be used against the employer portion of social security liability. The credit is the smallest of the current year research credit, an elected amount not to exceed $250,000, or the general business credit carryforward for the tax year. The election must be made on or before the due date of the originally filed return (including extensions). An election cannot be made for a tax year if an election was made for 5 or more preceding tax years. The election made by a partnership or S corporation is made at the entity level.
For more information, see Form 6765 and its instructions.