Changes to the tax code revised the way R&D Expenses are treated at tax time. Congress created the policy that is now diverting dollars away from essential R&D. Congress can fix this. You can help them understand why they need to.
Update: January 31, 2024
The U.S. House of Representatives passed H.R.7024 on January 31 to restore the R&D tax deduction, making R&D expenses 100 percent tax deductible from 2022 through 2025. It now must progress through the Senate where Sen. Sinema and Sen. Kelly are our champions.
If this critically important legislation passes the Senate “clean” with no changes, it progresses to the President for signature. If there are any changes, it must go back to the House first to have those changes approved by the House.
AZBio will continue to provide updates during this process.
R&D Expensing Then & Now
From 1954 through 2021, businesses could deduct the full amount of an R&D investment from their taxable income in the year they made the investment. This is called “full expensing.”
The Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115-97) changes this and in Tax Year 2023, R&D Expenses must be amortized over 5 years. This is a major setback, especially for our small, R&D intensive health innovators.
For example, if a business invested $10K in R&D in 2021, it could deduct $10K from taxable income, reducing its taxes by $2,100 in this simple example ($10K multiplied by the 21% statutory corporate income tax rate).
Under a provision in TJCA, businesses were required to amortize, or spread out, their deductions over five years starting in 2022. For example, if the business above invested $10K in R&D in 2022, it could only deduct $20 from taxable income over each of the next five years (2022-2026), reducing its taxes by just $4.20 per year.
| Under R&D Full Expensing | Under R&D Amortization | |
| Amount of R&D Investment | $10K | $10K |
| Deduction in Year of Investment | $10K | $2K |
| Tax Reduction in Year of Investment | $2.1K ($10K * 21%) | $420 ($2K * 21%) |
What YOU can do?
Speak up: The Biotechnology Innovation Organization (BIO) has created a BIO Action Alert that you can use to easily reach your elected leaders in Congress. They have started the message for you. By adding specifics about your Arizona business, you can make the message even more impactful. If your Member of Congress is supporting the fix, say Thank You!
Have more questions? Contact AZBio.