Lawmakers are prioritizing a bipartisan proposal for 2025 that aims to reinstate immediate deductions for research and development (R&D) expenses. For decades, under Section 174 of the Tax Code, businesses were able to deduct R&D costs in the year they occurred, a practice dating back to 1954. However, the 2017 Tax Cuts and Jobs Act (TCJA) ended this provision, requiring businesses to amortize these expenses over five years starting in 2022.
This shift, originally designed to offset other tax cuts, is now seen as a potential hindrance to U.S. competitiveness in the global innovation economy. While countries like China expand their R&D incentives, U.S. businesses have faced a slower growth rate in R&D spending.
Several bipartisan bills, including the American Innovation and Jobs Act (S.866) and the American Innovation and R&D Competitiveness Act (H.R.2673), aim to reverse the TCJA's changes and restore immediate expensing. These bills also propose expanding R&D tax credits for startups and larger companies.
Despite strong support, immediate R&D expensing is caught up in broader tax reform debates, pushing a potential resolution into 2025. Advocates, including the National Association of Manufacturers, emphasize the importance of restoring these deductions to keep the U.S. at the forefront of innovation and economic growth.
With widespread backing from lawmakers and industry leaders, restoring full R&D deductions remains a priority as tax policy discussions move forward.
