Corporate AMT & Treatment of R&E Expenses
Alternative Minimum Tax (AMT), Research and Experimental (R&E) Expenses
The AMT is 15% of the adjusted financial statement income (AFSI) of an applicable corporation, less the corporation’s AMT foreign tax credit.
An applicable corporation is a corporation (other than an S corporation, a regulated investment company, or a real estate investment trust) whose average annual AFSI exceeds $1 billion for the prior consecutive three years.
The AMT can also apply to a foreign-parented multinational group that meets the $1 billion AFSI test and whose net income in the U.S. equals or exceeds $100 million on average over the same three-year period.
– Large corporations that may be subject to the AMT for 2023 will need to estimate their AFSI for tax years 2020, 2021, and 2022. Once a corporation is an applicable corporation, it remains an applicable corporation for all subsequent tax years.
– Corporations that are subject to the AMT should be sure to consider the tax when making tax planning decisions.
– Large corporations that may be subject to the AMT for 2023 will need to estimate their AFSI for tax years 2020, 2021, and 2022. Once a corporation is an applicable corporation, it remains an applicable corporation for all subsequent tax years.
Treatment of R&E Expenses
Under the 2017 Tax Cuts and Jobs Act (TCJA), research and experimental (R&E) expenditures incurred or paid for tax years beginning after December 31, 2021, will no longer be immediately deductible for tax purposes.
Instead, businesses are required to capitalize and amortize R&E expenditures over a period of five or 15 years beginning in 2022.
The mandatory capitalization rules also apply to software development costs, including software developed for internal use. The new rules present additional considerations for businesses that invest in R&E.