With the opening of the 119th Congress, legislators are already beginning to work on the biggest piece of legislation of 2025: the tax bill set to extend the Tax Cuts and Jobs Act (TCJA). The 2017 TCJA was the last major tax bill passed, and it included a change to Section 174 that removed the immediate deduction of R&D expenses, instead requiring firms to amortize these expenses over 5 years (or 15 years if the expenses were made overseas). This was included as a “pay-for” to make the bill budget-neutral, since it was passed through a process called reconciliation.
This change has resulted in R&D work becoming much more expensive, with many high tech focused small businesses facing higher tax bills as a result. Small Businesses who participate in the SBIR and STTR programs are particularly burdened, since money received through SBIR awards can’t be used to pay taxes. SBTC has urged Congress to restore this deduction for the past 2 years, and although the House passed a bill to restore it last year, it did not get passed in the Senate.
SBTC has sent the letter below urging Congress to include a fix to Sec. 174 in any tax bill being considered in 2025. Congress must act quickly to ensure that America’s innovative small businesses continue to help maintain the US’s global technological advantage.
SBTC Letter to Congress on Sec. 174 R&D Tax Expensing