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New Business Tax Reform - R&D

Tax Development Dec 20, 2017

Research and Development Tax Credit Impact from the Tax Cuts and Jobs Act of 2017

Today the 115th Congress of the United States passed sweeping tax reform, the likes of which has not been undertaken since 1986. With adoption of the Tax Cuts and Jobs Act of 2017 (TCJA), the House and Senate permanently cut the corporate tax rate from 35% to 21% and temporarily trimmed individual rates as well. Luckily for those driving the development of new and improved products and processes in the United States, Congress left untouched the Research and Development (R&D) Tax Credit and enacted provisions sure to expand the reach to taxpayers once precluded from claiming the benefit as well as those searching for replacement incentives. 

Most notably, the TCJA’s elimination of the corporate Alternative Minimum Tax (AMT) and temporary increase in both the AMT exemption amount and phase-out threshold for individuals should open up the ability of those once blocked by the alternate rate system to use their credits to offset current tax due. Similarly, while the TCJA’s limitation on the deductibility and carryback of Net Operating Losses (NOLs) will certainly leave some taxpayers in a bind, the resulting amount of tax due will still be available for R&D credit application and offset. In addition to these claiming machinations, the decrease in the corporate rate to 21% will effectively increase the benefit of the R&D credit from 65% to 79% [through either the Internal Revenue Code Section 280C(3) election or addback of R&D deductions].

The TCJA also includes a provision requiring the amortization of R&D expenditures over a five-year period beginning in 2022. 


Michael A. Thompson