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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I am currently working on a new product where I have hired

Resolved Question:

I am currently working on a new product where I have hired an Engineer and a Patent Attorney for the design of drawings and writing a patent. I am a sole proprieter, not LLC or a corporation. Can I write these expenses off my taxes, or do I need to wait until the invention is complete and has been manufactured, starts selling etc. ?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear 1 Walnut,

 

Thank you for your question. I assume you are on cash accouning and your tax year is January to December.

 

As long as you have the intention of making money with this, even though the outcome is not certain, you can take the expenses in the year you pay for them.

 

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.

 

If you are to take them in later years, you have to do so when you receive economic benefit.

 

the following costs are not included as research developmetn (product development):

 

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.

AS a sole proprietor you would record expenses on schedule C.

If a partnership on schedule E.

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 6 other Tax Specialists are ready to help you
Customer: replied 5 years ago.

thank you very much! This is very helpful. Could you specificy, what does this type of expense fall under on taxes? Is there a Research and Development section? Or is it under "other" or? I use TurboTax to do my taxes.

Thank you again.

Expert:  Ed Johnson replied 5 years ago.

These expenses would go into other. When it is over you may have excess net operating losses to carry forward anyway.

 

I forgot to mention you can also elect to amortize these over a 5 year period.

 

See the following instructions: http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

 

 

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