The election results certainly bring a new day when it comes to taxes – especially for small and medium businesses. In particular, the election will end the log-jam that has held up providing relief from the amortization requirements for research expenses that took effect in 2022 – and bring back the long-time traditional policy of allowing immediate expensing of research costs.
The amortization of research expenses was included in the Tax Cuts and Jobs Act (TCJA) in 2017 as a payfor. It was the odd provision that no member of Congress supported and was never intended to go into effect. Best laid plans.
Repeal of the amortization provision and returning to expensing of research costs – while enjoying strong bipartisan support — was delayed because it was essentially taken as a bargaining chip by some members who believed they could impose a grand deal that would include an expansion of the child tax credit. That failed.
Now with the elections – and Republicans controlling the White House, the Senate and the House – the decided expectation is that early in 2025 there will be a tax bill put forward through the reconciliation process (only requiring 50 votes in the Senate).
Whether there is one or two tax bills is still a point of discussion (and also a non-tax reconciliation bill), but regardless the first tax bill will have as a focus addressing the sunsetting provisions in the TCJA bill (lots of individual tax relief expiring at end of 2025) – as well as repealing the amortization of R&D and bringing back expensing – something that President-elect Trump has specifically stated his support. Happy day.
While the return of expensing for R&D looks set, the question is the effective date – will Congress reach back and allow for expensing in earlier years (even to make it seamless to 2022?). R&D amortization has been a heavy grind for small and medium businesses – and Congress is aware of that burden.
As something of a guide to Congress’ thinking on the issue, the proposed legislation put forward by Chairman of the Ways and Means Committee – Jason Smith (R-MO) and the Chairman of the Finance Committee – Senator Ron Wyden (D-OR) does provide for a seamless fix to the R&D expensing. However, reaching back that far is a pretty big lift for Congress (another year will have gone by when Congress looks at this in 2025) – and I suspect the cost of doing so will weigh particularly in members minds. We will see.
