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Leveraging the R&D Tax Credit in 2024

The R&D Credit is the most potent permanent tax credit available to businesses in the country. However, several companies hear ‘research’ and immediately disqualify themselves. It is a misconception that only businesses that work with test tubes and labs qualify for this credit. Another roadblock that stops firms from claiming this credit is the Tax Cuts and Jobs Act of 2017, which requires companies to capitalize and amortize corporate Research & Development (R&D) expenditures over five years. Businesses now hesitate to claim this credit as the value is stretched across five years, and the tax savings have been reduced. Fortunately, legislative changes have been implemented this year, bringing much-needed relief to the companies nationwide. 

Change on the Horizon

The government passed the Tax Relief for American Families and Workers Act of 2024 early this year. The Tax Relief for American Families and Workers Act provides several benefits for businesses, including those looking to claim the Research and Development (R&D) Credit.


Here’s how the act can help such enterprises:

Immediate Deduction for R&D Investments

The act allows businesses to immediately deduct the cost of their U.S.-based research and development investments. This means companies can deduct the total amount of their R&D expenses the year they are incurred rather than spreading the deduction over five years. This immediate deduction can give businesses significant tax savings and improve cash flow, allowing them to reinvest in further research and innovation.

The act restores full and immediate expensing for machinery, equipment, and vehicle investments. This means businesses can deduct the entire cost of qualifying assets the year they are placed in service rather than depreciating the cost over several years. This provision can encourage firms to invest in new equipment and technology, including those related to research and development activities.

The act increases the amount of investment that small businesses can immediately write off to $1.29 million. This higher threshold allows small businesses to deduct a more significant portion of their investments in qualifying assets, including those related to research and development, in the year they are incurred. This can provide small businesses additional financial relief and incentivize them to invest in innovation and growth.

Additionally, the act addresses the treatment of other business-related expenses, such as business interest expense, bonus depreciation, and research and experimental costs. These provisions further benefit businesses engaged in research and development activities by providing additional tax relief or incentives to invest in innovation.

The Tax Relief for American Families and Workers Act aims to stimulate economic growth, encourage innovation, and support businesses, including those engaged in research and development activities, by providing immediate deductions for R&D investments, restoring full expensing for certain assets, increasing immediate write-offs for small businesses, and addressing various business-related expenses.

In Conclusion

The Tax Relief for American Families and Workers Act presents significant opportunities for businesses, particularly those involved in research and development (R&D), to enhance competitiveness and drive innovation. By allowing immediate deductions for R&D investments, restoring full expensing for critical assets, increasing write-off thresholds for small businesses, and addressing various business-related expenses, the act aims to stimulate economic growth and job creation. These measures provide businesses with valuable tax relief and incentivize investment in technology, machinery, and innovation, ultimately fostering a dynamic and resilient economy. 

As businesses leverage these provisions to expand their R&D efforts and invest in future growth, the positive impact on productivity, competitiveness, and overall economic prosperity is expected to be substantial. Understanding the legislative updates to the R&D credit and how they apply to your business is challenging and requires intimate knowledge of tax codes and laws. You need an expert to help you navigate this tax credit. Contact us to learn how we can help you use the R&D credit.