Recent changes to the tax code related to the deductibility of research & development (R&D) expenses will create financial hardship for U.S. companies, especially small and medium-sized businesses. 

Prior to the passage of the Tax Cuts and Jobs Act in 2017, the U.S. tax code allowed companies to take an immediate annual deduction on R&D expenses. This encouraged U.S.-based innovation, local jobs, and additional private-sector investment in U.S.-based R&D. Now companies must amortize R&D investments over five years instead of being able to deduct them in the same year the costs are incurred.

This dramatic shift in tax treatment is adversely affecting the cash flow for all businesses engaged in R&D, particularly small businesses that rely on this deduction and do not have the capital to make six-figure tax payments. Many are forced to lay off employees, finance these payments on expensive lines of credit or credit cards, and worse consider shutting down operations. These businesses account for 15% of U.S.-based, private-sector R&D investment, and this tax deduction change will have a significant impact on their ability to survive.

Language in the American Families & Jobs Act, introduced by the House Ways and Means Committee in June 2023, restores the longstanding accounting treatment of R&D investments by repealing the amortization provisions. Pro-innovation tax policy has a history of broad bipartisan support that continues today. Congress should ensure seamless continuation of the immediate deductibility of R&D expenditures to support the small businesses that are our innovation economy’s lifeblood.

Until Congress acts, the R&D amortization provision remains in effect. To learn more about how the new tax rules may impact your company and how to comply, register to attend a free online webinar hosted by the Technology Councils of North America (TECNA). You’ll also have an opportunity to have your questions answered live by a tax specialist. Additional details and a link to register are below.

What: An online webinar hosted by TECNA
When: Tuesday, July 11, 2023 at 11 a.m. PT
How long: Approximately 30 minutes
Why: Learn the technical details of the new tax rules, how to comply, and get your questions answered by a tax professional
How do I attend? Register here