Capitalizing software costs is a common practice for companies looking to show higher net revenues for accounting purposes. This involves amortizing the cost of the software instead of counting it as an expense. However, this does not necessarily mean that the same should be done for tax purposes. Consultants are hired to provide their expertise and knowledge to help companies reach their goals and solve problems.
The costs associated with specialized services, such as hiring consultants or accountants, are usually considered operating expenses. The value they bring to their customers goes beyond their technical skills, as their consultative approach helps customers make the most of their data. In some cases, companies hire consultants to do the daily work and increase or supplement staff, thus avoiding the fixed costs associated with a full-time employee. The types of costs that can be capitalized during the application development phase include employee compensation and consulting fees for third-party developers working on these projects. The fees paid to the consultant to determine the amount of the credit are operating expenses and should be recorded as such, just like any other charge for accounting services or temporary service.
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