THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST
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ATTENTION: THE APRIL 18TH TAX DEADLINE IS APPROACHING FAST - DON'T FORGET TO CLAIM YOUR R&D TAX CREDIT!BOOK A CALL TODAY
The long-rumored compromise will help innovative companies and lift 500,000 children out of poverty
Yesterday, the House voted 357 to 70 to pass the Tax Relief for American Families and Workers Act of 2024. The bill is the long-rumored compromise to restore both the R&D Tax Credit to its original, pre-Tax Cuts and Jobs Act form and the Child Tax Credit, which was implemented during Covid to help working families.
As CBS News explained it: "The legislation would make it easier for more families to qualify for the Child Tax Credit, while increasing the amount from $1,600 per child to $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025. It would also adjust the limit in future years to account for inflation. When in full effect, it could lift at least half a million children out of poverty, according to the Center on Budget and Policy Priorities."
And for innovative companies, the restoration of the pre-TCJA R&D Credit is also massive news. The TCJA had changed the cost-benefit analysis for research-minded American companies both big and small when it came to building innovative products. By creating aspects of R&D that had to be amortized rather than deducted in the same year, the cost of research and development rose exponentially. (Read our Founder's Guide to R&D Capitalization to get a better sense of how the profitability analysis has shifted.)
The new law keeps the provision from the TCJA that makes it so R&D costs incurred outside the United States must be amortized over 15 years. However, if this law passes the Senate: "The provision delays the date when taxpayers must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025. Therefore, taxpayers may deduct currently domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026."
By restoring the domestic R&D Tax Credit to its earlier form, where R&D costs can be deducted rather than capitalized, American companies are once again incentivized by business tax law to create new, game-changing products.
It's still up in the air whether the Senate will approve the Tax Relief for American Families and Workers Act of 2024, but we'll let you know as soon as a decision is made.