VTCA is working with coalition allies to include the R&D fix in the federal government funding resolution that needs to be approved by November 17.
House and Senate tax writers are discussing a compromise tax package that would include a multi-year fix to R&D amortization.
Congress needs to understand the urgency of fixing R&D amortization before the end of the year.
Background:
Since 1954, Section 174 of the federal tax code allowed businesses to deduct qualified research expenses in the year those costs were incurred. Congress created the related R&D tax credit in 1981. As part of the Tax Cuts and Jobs Act of 2017, Congress changed how taxpayers write off R&D expenses. Starting on January 1, 2022, firms must amortize R&D expenses over five years in most cases.
Amortization of R&D expenses is causing significant cash flow problems for engineering firms. The potential result is firms may put on hold plans to hire, grow, and invest because of the higher tax bills they are paying.
Congressmen Ron Estes (R-KS) and John Larson (D-CT) and Senators Maggie Hassan (D-NH) and Todd Young (R-IN) have introduced legislation (H.R. 2673 and S. 866) to repeal the R&D amortization provision. There is a coalition of business allies to build support for the legislation and secure relief from the R&D amortization requirement before the end of 2023.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced several changes to the treatment of research and development (R&D) costs. One of the key changes was related to the amortization of R&D expenses. Before the TCJA, businesses had the option to deduct their R&D expenses in the year they were incurred or to capitalize and amortize them over time. However, the TCJA requires that companies capitalize and amortize R&D expenses over a five-year period for expenses incurred after 2021.
This change impacts the timing of tax deductions for R&D expenses, potentially deferring the tax benefits associated with R&D investments. Companies need to carefully consider the implications of this change on their financial statements and tax planning strategies.
As an advocate for infrastructure investments, understanding the tax implications of R&D amortization under the Tax Cuts and Jobs Act can be crucial in assessing the financial viability of various infrastructure projects. Contact your members of Congress urging them to support HR 2673 and S 866 to repeal the R&D amortization provision.