Inventions and Taxes

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William Harper took early retirement from Westinghouse in 1989 and began to work on an invention -- a way to improve trailerable pontoon boats. The technical challenges were substantial as were the research and development costs. He kept careful track of his expenses and, at his accountant’s direction, wrote them off each year. Then, two years into his development work, he got an audit letter from the IRS questioning his inventing deductions for the prior year. Thus began a two-year sojourn in which Harper met with an IRS auditor four times and ended up hiring a lawyer. Finally, after two years, the IRS admitted it could find nothing wrong with his deductions and the case was closed. The IRS cost Harper a lot of time, aggravation and attorney and accounting fees. But it could have been a lot worse. Because Harper kept proper records, filed an accurate tax return and claimed only those deductions to which he was entitled, he was able to beat the IRS. Other inventors have not been so lucky.

William Harper’s experience should serve as an object lesson to every self-employed independent inventor: You may not be interested in the IRS, but the IRS is interested in you. You need to pay careful attention to tax matters. This section provides an overview of the brave new world of taxation you are about to enter as an independent inventor and explains some ways to deal with it efficiently.

We'll be adding some helpful tax related articles soon, so please check back for tips on saving on your taxes.