New IRS R&E Rules Risk Stifling Software Innovation for Startups

Sept. 26, 2023, 8:45 AM UTC

The IRS’s September Notice 2023-63 clarifies the definition of software development for purposes of current year expensing, encompassing nearly every aspect of the software development process. In doing so, it’s requiring most related expenses be amortized.

This is a major problem for so-called “bootstrap” software developers, or those that fund their development without access to typical streams of capital. Exact numbers vary, but many of these types of developers don’t make it to the five-year mark.

Those startups, which typically self-fund or have an informal investment process, need to be able to expense their software development costs. For many, ...

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