Final answer:
Research and experimental expenditures, under IRC 174, are costs incurred by businesses in the process of conducting research and development activities. These costs can be deducted as ordinary business expenses, which helps incentivize businesses to invest in innovation.
Step-by-step explanation:
Research and experimental expenditures, as defined under IRC 174, are costs that businesses incur in the process of conducting research and development activities. These expenditures include both direct and indirect costs that are necessary for the development of a new or improved product or process. Direct costs may include wages, materials, and supplies, while indirect costs may include utilities, rent, and depreciation of equipment.
Under IRC 174, businesses are allowed to deduct research and experimental expenditures as ordinary business expenses in the year they are incurred. This deduction helps to incentivize businesses to invest in research and development activities, as it reduces their tax liability and increases their ability to pursue innovation.