**2026-06-20**

# What ASU 2025-06 Means for Startups

Startups feel [ASU 2025-06](/software-capitalization/asu-2025-06) through one mechanism above all: they build novel, unproven software, and the new standard says you can't capitalize while [significant development uncertainty](/software-capitalization/glossary/significant-development-uncertainty) remains.

## More early expensing

For an early-stage product with genuinely novel technology, the [probable-to-complete threshold](/software-capitalization/glossary/probable-to-complete) may not be met until the approach is proven through coding and testing — which can be deep into development. Until then, the spend is expensed. That's arguably more honest (early, R&D-like work isn't really an asset yet), but it changes how your burn and operating results read.

## Diligence and exit readiness

A clean, defensible capitalization policy matters when investors or acquirers run diligence. Vague or inconsistent capitalization is a red flag; a documented policy built on the new threshold — with evidence of when each project crossed it — is the opposite. Build it early. Reconstructing it later is expensive and looks worse.

## The tax angle

Software development also interacts with R&D tax credits and IRC §174 capitalization — separate from book accounting, with their own rules. Don't assume book and tax treatments line up; align the two analyses, especially at a startup where the cash impact of tax is real.

## Should you early-adopt?

ASU 2025-06 is effective FY2028 but available now. A startup might early-adopt for cleaner comparability ahead of a raise or exit, or wait. Weigh it with your auditors — and either way, start capturing the evidence (funding, scope, risk-resolution) from day one. Done as you go, it costs nothing; see [applying ASU 2025-06](/software-capitalization/applying-asu-2025-06).

## Frequently asked questions

### Does ASU 2025-06 hurt a startup's financials?

It often defers capitalization for novel work, increasing early expense and lowering near-term reported income — though it more honestly reflects early-stage R&D.

### Does it affect R&D tax credits or §174?

Those are separate tax rules; ASU 2025-06 is book accounting. Align the analyses, but don't assume they match.

### Should a startup adopt early?

Possibly — for comparability ahead of a raise or exit. Weigh it with your auditors, and capture the evidence either way.

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