Inc. RFG believes that as organizations determine to either purchase or internally develop software solutions, tax ramifications need to be considered. CIOs should understand how expensing or capitalizing software impacts the corporation as a whole. CIOs should discuss the tax ramifications of internally-developed software solutions with their CFOs or corporate tax accountants. In order to minimize that portion of a software project that must be expensed, CIOs should discuss tax ramifications with their finance colleagues to determine the best way to structure the software-implementation project.
Investors tend to undervalue organizations that expense all their software development costs.
CIOs and their financial colleagues need to evaluate the impact of software development tax treatment on stock prices. Software development firms, accounting organizations and many large public organizations have been politicking for a revision to this accounting rule. As proposals are heard by FASB, there is agreement that a more practical approach to software capitalization is needed. CIOs with their financial colleagues should be working with organizations such as the Institute of Management Accountants to have this rule modified. CIOs must not only understand how this accounting rule affects the tax liability of the organization but how it impacts the overall value of the corporation.