As startup funding is increasingly harder for Illinois startup companies to raise, it is more critical than ever that we support American innovation and job creation. However, a harmful change in the tax code threatens to stifle these efforts, especially for small businesses and start-ups in our community. Congress must take action to extend three tax policies vital to supporting innovation and workers in our community: immediate R&D expensing, a pro-growth interest deductibility standard and full expensing. 

For nearly 70 years, the tax code allowed businesses to fully deduct their R&D expenses in the same year they were incurred. This harmful tax change took effect in 2022, requiring businesses to amortize their R&D expenses over a period of years, increasing the cost of conducting R&D in America. This development has already taken a toll, with many small bio-science companies in Illinois at risk of shutting down, resulting in the loss of invaluable jobs and research.

Additionally, debt financing is vital in supporting growth, especially for small businesses that need to borrow funds to finance long-term investments in equipment and facilities necessary for job creation and competitiveness. However, stricter limitations on interest expense deductions are causing an increase in the cost of financing critical investments, pushing back investment decisions in favor of loan repayment. According to an EY study, reduced deductions for interest on business loans will cost the United States 867,000 jobs and $108 billion in GDP.

Furthermore, the full deduction of equipment and machinery purchases in the tax year purchased phased out starting in 2023 and will be wholly eliminated by 2027, creating a significant burden on many businesses that rely on this incentive. Smaller businesses with tighter margins are hit the hardest, preventing them from freeing up much-needed capital and impacting reinvestment efforts to drive growth.

To mitigate the impact of the current harmful changes, Congress needs to extend the longstanding tax incentives for research and development. Legislation has already been introduced to preserve R&D deductions, but more concrete action needs to be taken soon. With the Continuing Resolution coming up, Congress has a critical opportunity to act and save Illinois companies, innovation, and jobs.

iBIO is helping our community members through the BIO Business Solutions program with discounted access to ADP’s R&D tax credit services. Members receive a free initial assessment to estimate the potential federal & state R&D tax credits for which your company may be eligible. You can click here to learn more

Our community must maintain the innovation, jobs, and economic growth that comes with R&D investment. We encourage our congressional members to take immediate action to unde these harmful tax provisions and ensure our community and economy remain vibrant, growing, and competitive. 

Related: iBIO Signs Letter Urging Immediate Action on R&D Amortization (March 30, 2023)

iBIO is proud to sign onto a letter urging immediate legislative action to repeal provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that went into effect in 2022. The American Innovation & Jobs Act of 2023 (S. 866) bipartisan legislation sponsored by Senators…