R&D Expensing’s Return Proves Small Businesses Have Influence

The R&D tax credit changes will do much to help the US encourage and support innovation in a wide range of fields—as well as manufacturing. The US must do all it can to encourage the new in this nation, especially with robotics and artificial intelligence widely seen as vital for the country to be competitive.

The process of how the retroactive expensing provision became part of the bill demonstrates the importance of small businesses making their voice heard.

There had been previous efforts to make the R&D tax credit relief retroactive for all businesses in a comprehensive relief bill put together last year by then-Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.). But that bill didn’t get over the finish line before Trump’s re-election.

In discussions with key tax writers in Congress, there clearly was little to no appetite for any retroactive relief for tax provisions—including R&D—and especially not for large businesses. From my own time as senior counsel for the Senate Finance Committee, I understand how difficult it can be to have elected officials embrace retroactive tax relief (not to mention the cost).

But because of alliant’s long-time work in the R&D space for small and medium-sized businesses, former Rep. Rick Lazio (R-NY) and I were fortunate enough to be invited by key tax writers, including Smith and Senate Finance Committee Chair Mike Crapo (R-Idaho), to talk to them about the ramifications of R&D capitalization for small businesses.

Highlighting numerous small businesses in lawmakers’ states and districts that were impacted by R&D capitalization was particularly helpful. The willingness of small businesses to tell their story directly through letters and videos—and allowing us to share their story with elected officials with details of their taxes and finances—was critical.

Congress hears plenty from big businesses, but from my experience it’s rare for them to hear from small and medium-sized business owners who have a technical tax issue beyond just wanting lower rates.

Overall, elected officials were receptive, as they understood how much the requirement of capitalization had harmed small businesses. Particularly compelling was the diversity of businesses that were affected—engineering, manufacturing of all types, software, and agriculture and food processing—all qualifying for the R&D tax credit and suffering from the capitalization requirement.

The tax package’s expensing for R&D going forward in 2025—and the cherry on top of retroactive relief for R&D expensing—shows what is possible when small businesses join an organized effort to tell their story to Congress. A win for those small businesses, their workers, and the country.