Bigger Tax Bills Are Coming for Companies with R&D Expenses

Over the next couple years certain provisions of the Tax Cut & Jobs Act that was passed in 2017 are starting to expire. One that affects a lot of start-ups is the loss of the ability to immediately deduct research and development expenses. Now they have to take the deduction over a period of several years instead.

The reasoning behind having companies capitalize instead of expense certain deductions is tge idea of “matching” revenues with expenses. In theory, the R&D these companies are doing will affect future earnings in addition to current earnings, and thus they should take the deduction over a period of years instead of in just one year.

The problem is - Congress regularly allows companies to accelerate the expensing of deductions that would normally be capitalized (such as with Bonus Depreciation and the Section 179 deduction). A favorite thing to tell clients is if you expect tax law to make sense - that’s your first mistake.

There has already been a bill introduced by Senators Hassan & Young that seek to overturn this sunset, as well as expand the tax R&D credit.