a$.$ Explain how this$$ pre$-2022$ treatment differs from their deductibility in $2022$ and later years.

A$.$

$$Pre$-2022,$ research and experimental expenditures could be expensed or$$ amortized, based on an election made by the taxpayer. In $2022$ and later$$ years, R&E expenditures must always be expensed in the current year because if the taxpayer does not elect to expense in the current$$ year, they will lose the deduction completely.

B$.$

For taxable years that began before January$1,2022,$ a taxpayer had two alternatives for deducting$$ R&E expenditures:$(1)$ treat them as$$ expenses, thus deducting them in the year the taxpayer paid or incurred$$ them, or$(2)$ capitalize them as deferred expenses and amortize them over a period of $72$ months or more beginning with the month the taxpayer first realized benefits from them. For $2022$ and later$$ years, taxpayers must capitalize$$ R&E expenditures and amortize them ratably over the$$ ten$-$year period beginning with the start of the year in which they are paid or incurred.

C$.$

For taxable years that began before January$1,2022,$ a taxpayer had two alternatives for deducting$$ R&E expenditures:$(1)$ treat them as$$ expenses, thus deducting them in the year the taxpayer paid or incurred$$ them, or$(2)$ capitalize them as deferred expenses and amortize them over a period of $60$ months or more beginning with the month the taxpayer first realized benefits from them. For $2022$ and later$$ years, taxpayers must capitalize$$ R&E expenditures and amortize them ratably over the$$ fifteen$-$year period beginning with the middle of the year in which they are paid or incurred.

D$.$

For taxable years that began before January$1,2022,$ a taxpayer had three alternatives for deducting$$ R&E expenditures:$(1)$ treat them as$$ expenses, thus deducting them in the year the taxpayer paid or incurred$$ them, $(2)$ capitalize them as deferred expenses and amortize them over a period of $60$ months or more beginning with the month the taxpayer first realized benefits from$$ them, or$(3)$ capitalize them$$ indefinitely, deducting them when the research project was abandoned or became worthless. For $2022$ and later$$ years, taxpayers must capitalize$$ R&E expenditures and amortize them ratably over the$$ five$-$year period beginning with the middle of the year in which they are paid or incurred.

Part $2$

b$.$ Would most taxpayers prefer the$$ pre$-2022$ treatment of$$ R&E expenditures or their treatment in $2022$ and later$$ years?

A$.$

Most taxpayers would prefer the $2022$ treatment of$$ R&E expenditures because the$$ deductions' tax savings are spread over five years which is beneficial against taxes each year rather than just in the immediate year.$$ Pre$-2022$ tax law allowed two alternatives to the immediate deductibility of$$ R&E expenditures, which may have been beneficial if the taxpayer were in a high tax bracket.

B$.$

Most taxpayers would prefer the$$ pre$-2022$ treatment of$$ R&E expenditures because the$$ deductions' tax savings are realized immediately rather than over five$$ years, increasing their present value.$$ Pre$-2022$ tax law allowed two alternatives to the immediate deductibility of$$ R&E expenditures, which may have been beneficial if the taxpayer were in a low tax bracket. The flexibility that$$ pre$-2022$ tax law provided is not available in $2022$ and later years.

C$.$

Most taxpayers would prefer the $2022$ treatment of$$ R&E expenditures because the$$ deductions' tax savings are spread over ten years which is beneficial against taxes each year rather than just in the immediate year.$$ Pre$-2022$ tax law allowed only one alternative to the immediate deductibility of$$ R&E expenditures, which may have been beneficial if the taxpayer were in a low tax bracket.

D$.$

Most taxpayers would prefer the$$ pre$-2022$ treatment of$$ R&E expenditures because the$$ deductions' tax savings are realized immediately rather than over ten$$ years, increasing their present value.$$ Pre$-2022$ tax law allowed three alternatives to the immediate deductibility of$$ R&E expenditures, which may have been beneficial if the taxpayer were in a low tax bracket. The flexibility that$$ pre$-2022$ tax law provided is not available in $2022$ and later years.

Explain how this pre$-2022$ treatment differs from their deductibility in $2022$ and later years.Would most taxpayers prefer the pre$-2022$ treatment of R&E expenditures or their treatment in $2022$ and later years?