Companies are asking lawmakers to repeal a change in the tax code that requires businesses to spread their research-and-development costs over five years rather than deduct them immediately
The companies either didn’t immediately respond to requests for comment or declined to comment beyond the letter.
Companies are currently assessing how much can be deducted to offset those expenses, Mr. Castro said. Rising interest rates, high inflation and a cooling economy have made that calculation more important than when the law was enacted in 2017 as it is more appealing financially for companies to have the benefit now versus over five or 15 years. “When you spread out the deduction over five years, that is less powerful than incurring the deduction in the first year,” Mr. Castro said.
Companies in the U.S. can still take a credit for their increased spending on qualifying research and development. Tax deductions are subtractions from taxable income while tax credits get subtracted from the amount of tax owed. The credits along with the deductions incentivize companies to invest in innovation, tax attorneys said.
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