Over the past few months, ACT | The App Association and our members have been at the forefront of advocating to restore crucial research and development (R&D) tax relief found in Section 174 of the Internal Revenue Code (IRC). Rewarding best practices through tax incentives, such as R&D deductions, empowers small companies to improve business cash flow and increase investment capabilities. The introduction of the Tax Relief for American Families and Workers Act of 2024 marks a commendable stride towards this goal, showcasing a strong bipartisan commitment to fostering innovation and business growth. As the bill now heads to the Senate, where it faces a murky future, we reflect on the importance of this moment for our members and the broader app economy.
Tax Season Nightmare
The looming tax season and our persistent engagement,including our letter to the House Ways and Means Committee, underscores the timeliness and necessity of H.R. 7024. Historically, Section 174 of the IRC permitted businesses to fully deduct their R&D expenses in the year they were incurred. However, the 2017 Tax Cuts and Jobs Act (TCJA) altered this, compelling businesses to amortize these expenses over five years. This change has disrupted a tax strategy that small businesses have relied upon for over 70 years and has significantly altered the long-term financial planning necessary for running a business. This includes halting various aspects of their operations, like pausing recruitment for high-paying jobs, ceasing expansion efforts, and stopping the development of innovative products and services.
Requiring the amortization of research expenses will directly reduce R&D spendingand lead to a loss of more than 23,000 R&D jobs in just the first five years, with that number increasing to 60,000 over the following five years. This challenge extends beyond large corporations; startups and small businesses are equally affected. Reinstating the immediate expensing of R&D under Section 174 would rejuvenate domestic investment and fortify the American workforce on a global scale.
Next Steps
In championing the Tax Relief for American Families and Workers Act of 2024, we and our members advocate not only for the immediate benefits of tax relief but for the long-term vision of an economy powered by innovation, entrepreneurship, and sustainable growth. Let’s ensure that the backbone of our economy, small businesses and startups, are equipped with the tools they need to lead us forward.
As the Senate considers this pivotal legislation, it is imperative to recognize the broader implications of R&D investment on the national and global stage. Supporting full expensing for R&D is not merely about tax policy; it’s about investing in the future of American innovation, securing high-quality jobs, and ensuring our competitive position on the global stage. We call upon the Senate to act decisively to support a tax framework that nurtures innovation, reinforces America’s leadership in technology, and underpins our economic security.