Research expense records under Section 174A: what to give your tax adviser

Research expense treatment changed under the 2025 legislation. IRS Revenue Procedure 2025-28 provides procedures for applying Section 174A and transition elections. The relevant tax year, eligibility, elections, and location of the research need review before a company chooses a treatment.

Keep domestic and foreign activity distinguishable. A vendor's billing address alone may not show where the work occurred. Record project, personnel or contractor, service dates, work location, and the evidence supporting the classification.

Gather payroll allocations, contractor invoices, project descriptions, software development records, and other spending the adviser requests. Explain how time or costs were allocated rather than supplying only a general research expense account.

Separate equipment and other purchases requiring their own assessment. The tax adviser needs to determine which costs fit the relevant rules. A company label such as engineering or product development does not establish eligibility.

Provide previous capitalization and amortization schedules, tax returns, accounting method information, and any elections. Identify amounts that remain unamortized and the years in which they arose.

Ask the adviser which transition choices are available and what deadlines, eligibility requirements, or return changes apply. Avoid assuming a procedure available to one company applies to every startup.

The financial statements and tax return may use different treatment for development costs. Maintain a bridge showing the book amount, tax adjustment, remaining schedules, and reviewer conclusion.

If the adviser recommends an amended return or method change, preserve the approved analysis and filing evidence. Update the tax schedules without silently rewriting the accounting policy used for the financial statements.

Agree a practical project and cost-capture process with engineering, payroll, and purchasing. Keep it proportionate to the business while retaining the information needed to review location and nature of the work.

Before year-end, ask the tax adviser to identify missing evidence and decisions still outstanding. The operational goal is a complete, reconciled record supporting a qualified tax assessment, with the selected treatment and elections documented.