We Make Tax Filing A Breeze
Running a business and investing in new ideas that’s what keeps you competitive. And for years, the US tax code made it easy to get a tax break for that innovation. But lately, things have gotten complicated.
In this guide, we’ll walk you through the big changes to R&D tax deductions, explain what they mean for your business, and share some good news about a new law that could change things again for the better.
Before 2022, the tax rule for R&D was simple and great for businesses: you could immediately deduct your R&D expenses in the same year you spent the money.
This was a huge benefit. If you spent $100,000 on research, you could lower your taxable income by that full amount right away. It was a big incentive to keep innovating.
Starting with the 2022 tax year, this changed completely. The old rule went away, and now most businesses are required to capitalize and amortize their R&D costs.
What does that mean?
This shift means you can’t get the full tax benefit of your R&D spending right away. Instead of getting a big deduction in year one, you get a smaller deduction each year for several years. This can have a big impact on your company’s cash flow and bottom line.
Imagine you buy a new piece of office software for $1,000. Under the old rule (expensing), you would deduct the full $1,000 from your income this year.
Now, imagine you build a new testing lab for $50,000. You can’t deduct that all at once. The IRS says you have to “capitalize” it and deduct a portion of the cost each year for a set period (amortization). The new R&D rules treat your research costs more like building that lab than buying a piece of software.
Fortunately, help is on the way. A new law called the Omnibus Bill Bipartisan Act (OBBBA) is expected to be passed. It’s designed to bring back the old, business-friendly rules.
If the OBBBA becomes law, businesses would once again be able to immediately deduct their domestic R&D costs.
One of the best parts of the OBBBA is a special provision for small businesses.
This is why it’s so important to stay informed. Planning ahead could mean significant tax savings for your company.
To learn more about how you can reduce your taxes and save money, check out the helpful resources on our blog or contact us today to schedule a consultation.
