R&D Tax Credit — an Update on a Lifeline for Small and Medium Business

Historically, U.S. tax incentives for R&D have been near the top of the leader board among OECD nations, but according to Information Technology and Innovation Foundation (ITIF) who studies this all closely, the U.S. R&D tax credit ranks just 24th as other countries have upped their game (for example, China’s R&D tax subsidy is 2.7 times more generous than the U.S. according to ITIF).

Adding to the problems, Congress in its 2017 tax bill put in place a revenue raising provision (intended to be a placeholder) requiring R&D costs be amortized (over 5 years) and no longer expensed. This change in law requiring amortization – effective date January 1, 2022 – has placed a major tax burden on businesses. Particularly hard hit are our nation’s most innovative small and medium businesses. ITIF estimates that the amortization requirement drops the U.S. to 32nd of 34 OECD nations in terms of tax incentives for R&D and one of only a handful of countries that doesn’t allow for expensing of R&D. In short, a disaster.