New Bill Sparks Hope for R&E Amortization
The Tax Relief for American Families and Workers Act of 2024 is bringing new hope to the nation’s innovators. Announced by House Ways and Means Committee Chairman Jason Smith (MO-08) and Senate Finance Committee Chairman Ron Wyden (D-OR), the common sense, bipartisan, bicameral tax framework promotes the financial security of working families, boosts growth and American competitiveness, and strengthens communities and Main Street businesses.
Wyden stated that his “goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season, and I’m going to pull out all the stops to get that done.”
Many businesses were drastically affected when the Tax Cuts and Jobs Act (TCJA) came into effect, requiring research and experimental (R&E) costs to be amortized rather than expensed. This legislation required domestic expenditure to be amortized over 5 years and foreign expenditure to be amortized over 15 years.
U.S. Senator Maggie Hassan (D–NH) originally introduced the bipartisan legislation to restore the R&D deduction. Now, in an announcement made on January 16, Hassan has released a statement on the bipartisan tax deal.
“The bipartisan deal we have reached to restore the R&D tax deduction and provide a tailored expansion of the child tax credit will help drive innovation here in America and help children and families thrive. I have been strongly pushing to incentivize American R&D since first introducing bipartisan legislation in 2020 to restore the R&D deduction, and with the clear growing bipartisan support in both the Senate and the House, I will keep working with my colleagues and the business community to get this deal done.”
A technical summary of the entire bill can be found here, and goes into detail for efforts into American Innovation and Growth as well as Tax Relief for Working Families and Increasing Global Competitiveness, amongst others.
A summary of the bill covering American Innovation and Growth follows.
Currently, R&E expenses paid or incurred in tax years beginning after December 31, 2021, are required to be deducted over a five-year period. The new provision will delay the date when taxpayers must begin deducting their domestic R&E costs until taxable years beginning after December 31, 2025. Therefore, taxpayers may deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026.
With the House scheduled to be in recess during the week of January 22, the earliest the House could hold a floor vote would be the week of January 29. The legislation may be a candidate for the “suspension” calendar, requiring a two-thirds majority vote for passage. The House currently is composed of 220 Republicans and 213 Democrats (with two vacant seats that had been held by Republicans). A two-thirds majority vote would require the bipartisan support of at least 286 House members.
If passed, this could bring relief to spring filers, removing amortization requirements for 2023 timely-filed Spring filers.
Are you developing new technology for an existing application? Did you know your development work could be eligible for the R&D Tax Credit and you can receive up to 14% back on your expenses? Even if your development isn’t successful your work may still qualify for R&D credits (i.e. you don’t need to have a patent to qualify). To find out more, please contact a Swanson Reed R&D Specialist today or check out our free online eligibility test.
Who We Are:
Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.
Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative.
