A bipartisan bill was introduced this week to quickly implement important updates to the U.S. tax code before the next filing deadlines.
Called the Tax Relief for American Families and Workers Act of 2024, this bill lays out a three-year tax plan that, among other things, would roll back the research and expenditure (R&E) amortization and capitalization rules that were introduced under the IRC Section 174 addendum.
More specifically, the bill proposes delaying the rule that requires “research or experimental costs paid or incurred in tax years beginning after December 31, 2021 […] to be deducted over a five-year period,” while R&E performed outside the U.S. would be deducted over 15 years.
Instead, lawmakers want these rules to take effect for tax years starting after December 31, 2025. This would let taxpayers keep deducting domestic R&E costs incurred up to January 2026.
The TL;DR for US startups?
If this new bill passes, the much-feared tailwinds of the 2017 Tax Cuts and Jobs Act (TCJA) won’t hit this year. That means many innovative companies can keep taking advantage of the established R&E and R&D tax credits under IRC Section 41—and avoid an unexpected tax hit—for at least another calendar year.
Boosting U.S. competitiveness worldwide
“This legislation secures over $600 billion in proven, pro-growth, pro-America tax policies, with key measures supporting more than 21 million jobs,” said Ways and Means Chairman Jason Smith (R-Mo.) in a statement.
Senate Finance Committee Chairman Ron Wyden (D-Ore.) added: “By encouraging R&D, this plan will also drive innovation and help strengthen our economic edge against China and the rest of the world.”
The bill’s focus on global competitiveness is clear, with special attention to supporting U.S. businesses as they face rising competition from Chinese innovators. As a result, the legislation currently enjoys broad bipartisan support—a rare occurrence in today’s political climate.
“I’ve been a strong advocate for incentivizing American R&D since I first introduced bipartisan legislation in 2020 to restore the R&D deduction. With clear, growing bipartisan support in both the Senate and the House, I’ll keep working with my colleagues and the business community to get this done,” said Sen. Maggie Hassan (D-N.H.) in a statement.
Alongside changes to R&E expensing, the bill also proposes the following measures to boost homegrown innovation:
- Interest deductibility: More flexibility for businesses that had to borrow at high interest rates to cover payroll and grow their operations.
- 100 percent expensing: Restores full, immediate expensing for investments in machinery, equipment, and vehicles.
- Taiwan double tax relief: Eliminates double taxation for businesses and workers operating in both the U.S. and Taiwan.
More support for families and Main Street businesses
Beyond R&E, the Act also aims to speed up changes to the enhanced Child Tax Credit (CTC), making it more accessible by gradually increasing the refundable portion for 2023, 2024, and 2025. This includes removing penalties for larger families and introducing a “one-year income lookback,” allowing taxpayers to use either current or prior-year income to calculate their credit for 2024 or 2025.
The bill also proposes raising the small business expensing cap, letting SMBs write off up to $1.29 million in costs—up from the $1 million cap set by the TCJA in 2017. Similarly, it raises the reporting threshold for businesses working with subcontractors from $600 to $1,000—the first increase since the 1950s.
Racing Against Tax Day
While the bill has strong support from both the private and public sectors, there’s no guarantee these changes will be enacted in time to affect this year’s tax filings—especially as the IRS starts accepting federal income tax returns on January 29.
While there’s optimism that businesses will be able to claim their R&E expenses at pre-TCJA levels on this year’s return, companies shouldn’t just wait and see when preparing their 2023 tax credit claims.
At Boast, we work with hundreds of startups across North America to help them optimize their R&D and maximize their access to the non-dilutive government funding they deserve.
Check out our Guide to R&E Amortization and Capitalization for a quick overview of how current Section 174 rules are creating challenges for startups across the US.
Then, connect with a Boast expert today to see how we can help you unlock funding and extend your R&D runway.
