The following statement is attributed to Kate Tummarello, Executive Director of Engine:
Statement:
“Today the Senate is expected to undertake its first procedural vote on the Tax Relief for American Families and Workers Act of 2024, which includes an important provision to revert to immediate expensing for domestic R&D costs. Startups drive U.S. innovation and the shift to amortization has led to higher tax bills, slowed R&D, and reduced hiring for startup companies. We urge the Senate to swiftly pass this legislation to preserve the strength of the U.S. innovation ecosystem.”
Background:
Today, the Senate is taking its first vote on the Tax Relief for American Families and Workers Act of 2024. This legislation, if implemented, would revert to immediate expensing for domestic R&D expenditures, retroactively to 2021 and forward for taxable years through December 31, 2025, following a shift to amortization and capitalization under the Tax Cuts and Jobs Act of 2017.
Startups have historically relied on the ability to immediately expense R&D expenditures as a way to offset the significant cost of research and development. Currently, under section 174 capitalization, startups are required to amortize R&D costs over 5 years for domestic expenses, and 15 years for international expenses, posing a threat to a startup’s cash flow. Without immediate expensing, startups conducting R&D are forced to consider ceasing these activities, diverting more of their limited funds to afford significant tax bills, and eschewing other areas critical to startup success, like hiring. And this 2017 change is particularly damaging for those startups that generate revenue but are directing it back into research and development, especially because not all section 174 expenses are eligible for the R&D tax credit.
A return to immediate expensing for domestic R&D would help research and development-focused startups to continue to innovate, strengthening the U.S. startup ecosystem, and would put the U.S. more in line with most countries that permit immediate expensing.
