Stalled Tax Bill Limits Business Innovation

Source: U.S. Chamber of Commerce

Legislation to restore the deduction for domestic research and development (R&D) expenses, along with other key business tax provisions, has been stuck in the U.S. Senate for months. A small business leader told the U.S. Chamber that this is penalizing U.S. companies for innovating.

Why it matters: Small businesses need to invest in R&D to stay competitive.

Facing a higher tax bill: Since 2022, businesses have been required to amortize their domestic R&D expenses over five years instead of writing them off when they are incurred. Small businesses with R&D expenses have been hit with a median tax increase of $59,000.

• For Natalie Kaddas, CEO of Kaddas Enterprises and a director on the U.S. Chamber board, her company experienced a 35% tax increase.

Innovation drives small business growth. R&D is “almost anything that's going into building technologies and building process innovation,” said Joe Shamess, general partner of Flintlock Capital and chairman of the U.S. Chamber’s Small Business Council. “Everybody from manufacturers to tech companies are innovating their processes, and that can range from 20% of your headcount all the way up to 70-80% or more.”

• “You can't be the leading innovative economy with the best universities and the best infrastructure in the best capital markets, and then penalize companies for actually investing and becoming more efficient and building new technologies,” he added.

Be smart: Along with domestic R&D expensing, businesses also need Congress to restore 100% bonus depreciation and the EBITDA standard for deducting business interest expense.

Looking ahead: With many pro-growth tax provisions scheduled to expire at the end of 2025 unless Congress intervenes, the U.S. Chamber’s Tax Policy Summit on Thursday will be the place to dig deep into the policies, politics, people, and processes involved in next year’s important tax debate.