Beginning in 2022, major changes made to section 174 of the Internal Revenue Code by the 2017 Tax Cuts and Jobs Act went into effect that will require businesses to amortize R&D expenses over a five year period. Previously, these expenses were allowed to be deducted in the year they were incurred. The effect of this change is that beginning in 2022, the cost of performing R&D will be much higher and will result in a larger tax burden for many high-tech companies.
This will have a chilling effect on American R&D in general, but it will particularly harm R&D-focused small businesses like those participating in the SBIR and STTR programs. While the SBIR funding for the research will be counted as taxable income in the year it is received, the matching expenses will need to be amortized over five years, leaving a potentially catastrophic cash crunch that may force many companies to withdraw from the program, and will limit their ability to make other near-term investments.
Please take a few moments today to complete this Action Alert!