Desk of Dean Zerbe
Former Senior Counsel to the U.S. Senate Finance Committee; alliantgroup National Managing Director
New Legislation on Section 174:
Let Congress Hear From You
The curtain is rising on possible tax legislation this Congress – including legislation that addresses the R&D amortization issue. Chairman Jason Smith (R-MO) of the Republican-controlled House Ways and Means Committee recently put forward (and marked up this week in Committee) three bills – tax provisions to assist manufacturing; families and small business.
Build It In America Act
Build It In America Act – retroactively and seamlessly addresses three provisions – most importantly for many of you — the Section 174 R&D expensing is set aside until the end of 2025. We at alliantgroup were pleased that we could meet with members and staff of the tax-writing committees in Congress to make clear how important this change in law is for innovative small and medium businesses across the country.
In addition, the legislation continues bonus depreciation and net interest expensing until the end of 2025 as well. Other provisions include blocking purchases of agricultural land by certain countries (China, Russia, Iran, etc.).
The Tax Cut for Working Families Act
The Tax Cut for Working Families Act – the main provision is an expansion of the standard deduction (for two years) — $4,000 for joint filers and $2,000 for single filers (phase out at $400k for joint and $300k for single).
Small Business Jobs Act
Small Business Jobs Act – has a collection of provisions – changing the $600 requirement for Form 1099-K reporting back to $20,000. Other provisions include tax incentives for investors for startups organized as S Corporations; allow for immediate expensing for small businesses up to $2.5 million; expand opportunity zones for rural areas.
The Takeaways From the Hill
Probably the best way to think of these bills is as the House Republicans offer to the Senate Democrats for a possible tax bill this fall or end of year. The Democrats have been keen on having something for the Child Tax Credit as part of any deal on the business provisions – especially R&D. In recent discussions with senior Democratic tax staff on Senate Finance – they were optimistic about such a deal happening. I am hopeful.
Perhaps the best signal of serious of intent of reaching a deal on these tax issues, especially R&D expensing, was Chairman Smith’s inclusion of the expansion of the standard deduction. This has been widely understood as a good-faith response to Democrat priorities. While I don’t think that’s going to get them all the way home – it does show an openness to addressing Democratic concerns.
Contacting Your Elected Officials Matters
A key point: you and your clients contacting their elected officials matters. There is no question in my mind that the banging of the drum made the R&D fix a priority – and Chairman Smith agreeing to fix the provision retroactively. I appreciate the real shadow that is looming for many business owners as to R&D expensing.
My best suggestion is for you and your clients to focus their energy in contacting directly the elected officials and their staff in the Senate to make sure they understand the urgency of moving on the House bill. There is already strong bipartisan support for an R&D fix in the Senate – but its making it a priority that is key. I would encourage you to contact your Senators on this issue and press for a resolution. These Senators need to understand that delay is going to impact jobs and result in job losses — that the fix for R&D needs to happen NOW. I have provided you a draft letter HERE to serve as a starting point for your client – but the more you or your client can personalize it the better. If you do write, it would be helpful if you could provide me a copy so we can also followup with your elected officials to reinforce your message.
How To Contact Your Representative
Congress needs to hear how 174 is affecting you and your business if we want to make sure this gets passed. Use the template below to share your experience.