Fixing the R&D Tax Shock: “Huge Tax Bills Threaten Tech Startup Survival”

By SBE Council at 22 April, 2023, 6:32 pm

by Karen Kerrigan – 

As I remarked in a recent CNBC interview, “Congress often acts when what we said would happen actually does and it all erupts once the impact becomes real and painful.” That is certainly the case with the inability of small businesses to immediately expense R&D (amortization over a five-year period is now required) that was not extended in 2022.

SBE Council has long sought for enhancement and permanency for small businesses and startups, which has been proposed in bipartisan legislation over the course of several sessions of Congress, including last year, in the House and Senate. (See a previous Op-ed here: Congress Must Fix Tax Credits for Small Businesses – DC Journal – InsideSources.)

The CNBC piece noted above reviews the financial pain small firms are experiencing, and provides specific examples:

“How bad is it? According to Landon Bennett, co-founder of Georgia-based software firm Ad Reform, which provides automation technology for the advertising industry, his taxable income has gone up by 400%. ‘It’s been a tough year for the ad agencies, in the five or six toughest years we’ve ever had, so this is like a bomb on top of an already bad year,’ he said.

“Bennett has already forsaken his entire compensation for 2022 to pay the tax bill and said he considers himself fortunate to be able to put his entire pay towards it. But he added, ‘I can take that hit this year, but I can’t take it forever.”

On March 17, Senators Todd Young (R-Ind.) and Maggie Hassan (D-N.H.) reintroduced the “American Innovation and Jobs Act,” which will restore and make R&D expenses fully deductible (and permanent) while enhancing and expanding the R&D tax credit for small businesses and startups. On April 17, the Senators released a WTAS document to demonstrate growing support for the legislation. SBE Council’s Kerrigan was quoted:

“Now, more than ever, policies must fully support America’s innovative spirit. Full expensing for R&D investments is an important tool for leveraging and scaling the small business innovators and entrepreneurial firms that drive innovations and make the U.S. economy more vibrant and resilient. SBE Council strongly supports S.866, as its passage is vital to America’s economic, competitive and national security interests.”

SBE Council also joined a coalition letter in support of S. 866.  Bipartisan House legislation was just introduced this week.

Our team will continue to advocate for permanency and enhancement, and the good news is that there is growing consensus that this critical issue will be addressed. We’ll keep members and supporters posted on the progress through our regular communications (Small Business Insider e-news) and social media platforms.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.