The TaxRx Group is a specialty tax consulting firm. We work with local accounting teams to identify advanced options that reduce our clients’ taxes. We produce a yearly tax prescription (Tax Rx) to maximize available benefits and savings.
An Optimistic Outlook for Small Businesses and Innovation.
By Alphonso Anderson, Esq., LL.M (Tax)
This week’s Tax Tip focuses on the continuing impact of the current R&D legislation and the pending legislative changes regarding the amortization of expenses associated with R&D enacted under the Tax Cuts and Jobs Act. With the expiration of the Tax Cuts and Jobs Act (TCJA) in 2022, research and development (R&D) expensing witnessed a significant shift, requiring businesses to amortize their R&D costs over a five-year period rather than being able to deduct those costs from taxable income annually. However, recent activities on Capitol Hill indicate strong bipartisan support for the full restoration of R&D expensing in the year incurred, a move poised to bring significant relief to small businesses and invigorate technological advancements in the U.S.
During a House Small Business Committee hearing on June 6, lawmakers from both parties voiced their concerns about the challenges small businesses have been facing due to the shift from immediate R&D expensing to a five-year amortization process, as mandated by the TCJA. The rollback was initially predicted to raise $119.7 billion over 10 years, but it has proven to be a considerable hurdle for innovation-centric small enterprises.
On June 8, House Ways and Means Committee Republicans provided details on a business-oriented tax package after a meeting to discuss the bill’s contents. The bill looks to restore a trio of popular business tax breaks that were reduced under the Tax Cuts and Jobs Act; which include Research and Development Expensing, Bonus Depreciation and Net Interest Expensing. Rep. Nicole Malliotakis, R-N.Y., told reporters that the package will primarily focus on three big provisions from the TCJA that have sunsetted and that “the urgency is to deal with those provisions that have already expired.”
Despite the inherent legislative complexities, there is a unified consensus about the urgency of passing an R&D expensing bill. As Subcommittee ranking member Greg Landsman, D-Ohio, noted, the legislation is a “no-brainer” that needs to be enacted “sooner rather than later.”
In summary, the push for restoring full R&D expensing is gathering momentum in the U.S. Congress, with lawmakers on both sides of the aisle demonstrating their support. The reinstatement will undeniably benefit small businesses, fostering innovation and economic growth. This year’s biggest tax package is set to be marked up the week of June 12, 2023.
If you think you may benefit from the R&D Credit, call us at 801-477-7525 or schedule an appointment to speak with one of our TaxRx experts here