With the beginning of 2023, the implementation of R&D amortization in the last year, included in the 2017 TCJA Section 174, has already had impact on U.S companies developing projects. Until 2022, the deductions for R&D costs were paid over a single year – but, since January, this cost needs to be spread out over 5 years (for domestic research) or 15 years (for international costs).

Even with the concentration of R&D investment in a few areas, instead of being scattered in many of them, the effects have already appeared in the few sectors concentrated in research and development. Manufacturing, Information and Professional, Scientific and Technical Services, that represents together amount 90% of the Domestic Private R&D performance according to National Center for Science and Engineering Statistics, would all see over 20% tax liability reduction in 2023. This includes the impact of R&D tax credits in the manufacturing sector.

R&D amortization model still looking like – and actually proving itself – a new problem to new and old companies that already has and depends on the R&D credit, featuring kind a punishment instead of the claimed support, including the predicted loss of more than 20,000 jobs till 2027, affecting the currently and future investments by reducing the costs with innovation and R&D.

Therefore, it’s possible to see that the industry is mostly negatively impacted being forcing to amortize costs than with the immediate one-year deductions. Since there is no forecast about taking down this newest way, there’s still a lot of professionals and government officials that agree consider Section 174 a mistake in need to be fixed.

Although, despite the problems, TCJA improved incentives for investments in R&D, by reducing the corporate tax rate, which resulted in the reduction of the marginal tax rate on investment in all types of assets. Also, is possible to see a high growing of 8.3 percent annual rate in R&D investment, 4.2 bigger than in the two years before.

In short, there is a growing interest in R&D businesses after the TCJA, which slowed down a little after amortization began, but still in a good path to strengthen the innovation economy.

What do I have to do, then?

Deal with R&D tax credits and how it works must see complicated sometimes, and that’s why FI Group help companies around the world in their investments and business journey.

If you want to know what can be done to help your investments and your company’s growth, contact us to learn more about our services and how we can help you thought changes, processes and more.

We look forward to hearing from you! 

For more information please contact:

Bruce Kletsky – Managing Director USA

bruce.kletsky@fi-group.com

+1 630 947 6802

Or visit our website here.

R&D amortization: how it changes the U.S innovation scenario

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