16 January 2024

Since 2022, under a provision in the 2017 tax law, businesses were required to amortize their R&D costs over a five-year period, contradictorily to the same-year expensing that occurred over several decades.

The requirement of R&D expenses to be amortized is an unusual tax treatment from both historical and international perspectives, according to the Tax Foundation – and data collected from by the Bureau of Economic Analysis so far on the measure indicate a gap in America’s competitive advantage. Since the end of 2021, private sector R&D has seen minimal growth: just above 4% in the last eight quarters, significantly below the national inflation rate over the same period.

In a recent survey carried out by the SBE Council, the real losses from the eradication of immediate R&D expenses for small businesses were quantified. Used by almost 30% of theses companies, the loss of immediate R&D expenses means that a considerable percentage of them (35%) report that they will need to borrow money to pay higher tax bills; 34% report that profit sharing will be deferred to employees, followed by 29% reporting that they will lay off employees; and 19% report that they may be forced to close their business doors.

While the Tax Cuts and Jobs Act (TCJA) made solid gains in providing relief, support, and greater equality to US small businesses when it comes to the tax code, it failed to make significant changes to R&D expenses. Businesses, especially many small businesses, have been operating at a tax disadvantage for the last year or so.

A tax deal for American businesses and families

At this point, a tax deal could focus on a few important provisions that are critical to the success of small businesses – including restoring the immediate expensing of research and development investments, allowing immediate write-off of capital improvements and deductions for some interest expenses – and may depend on tying these business-side incentives with the extension or potential increase of the Child Tax Credit (CTC).

Small businesses need help and support. A fiscal package would represent a significant boost to small businesses, many of which have been competitively harmed by inflation, labor shortages, supply chain failures and tighter access to capital. If the goal is for the US economy to effectively weather the drain of these challenges, congress must identify practical solutions to help business owners – and families – overcome the pressure.

How can we help you?

FI Group is a global tax consultancy that helps industry obtain tax credits and incentives, with more than 1,700 qualified employees, counting on specialists from different fields, committed to supporting companies of all sizes and in all sectors of activities. With our expertise, FI Group specialists can support your company in identifying qualified activities. We specialize in helping companies finance innovation and secure funding for their R&D activities through the comprehensive management of the R&D Tax Credit.

× How can I help you?