For the May 2026 tax cycle, the IRS has issued a clarifying memo on Section 174, affecting how LLCs amortize R&D and software development costs.
- The Requirement: Every dollar spent on custom software or AI development must be amortized over 5 years, rather than deducted immediately.
- The Impact: This creates a significant “Phantom Profit” scenario where LLCs owe cash tax on money that was actually spent on growth.
- The Shark Insight: “Section 174 is a silent killer for tech-heavy LLCs. To survive the Q2 tax bite, you must maximize your ‘Energy Efficiency’ credits (Article #691) to offset the lack of R&D deductions. Talk to your CPA about ‘accelerated depreciation’ on hardware to balance the scales.”