American Innovation and Jobs Act
The American Innovation and Jobs Act would expand and accelerate tax incentives for research and development (R&D) in the United States. It does two big things: (1) it restores immediate expensing for most R&D expenditures (with an option to elect amortization for certain capitalized R&D costs) under Section 174, rewriting how those costs are treated for tax purposes; and (2) it broadens and enhances the refundable research credit for startups and small businesses, including higher refundable caps, a larger start-up eligibility window, looser gross-receipts limits, and a boosted credit rate for qualified small businesses. The bill also makes adjustments to ensure the interaction between the R&D deduction and the credit does not create unintended tax benefits, and it extends certain startup-specific election rules. The effective dates are generally prospective for new tax years, with some provisions applying to years beginning after 2021 or 2024, and a new, larger refundable credit structure would become available after enactment. If enacted, the changes could improve after-tax cash flow for firms investing in R&D, especially smaller startups and newer ventures, by allowing faster expensing and by expanding access to refundable credits. Larger firms that perform significant R&D would see a shift in timing and method of expense deductions and credits as they adjust to the new rules.
Key Points
- 1Restores immediate expensing for R&D (Section 174).
- 2- Allows a taxpayer to deduct R&D expenditures in the year paid/incurred as ordinary business expenses (not capitalized), with a choice to adopt this method in the first year or later with Secretary approval.
- 3- Provides an alternative: for certain R&D costs that are capitalized but not depreciable/depletable assets, taxpayers may elect to treat them as deferred expenses and amortize them ratably over at least 60 months, beginning when benefits are first realized. Election timing is limited to the tax year and must be followed consistently in future years unless changed with approval.
- 4- Excludes certain expenditures (e.g., land or mineral deposits) from these R&D expensing/amortization rules.
- 5- Delivers related conforming and cross-reference changes to ensure consistency with the new treatment.
- 6Adjusts the interaction with the research credit and other tax rules (Section 174 amendments and 280C adjustments).
- 7- Section 41(d)(1)(A) would refer to “expenses under section 174” rather than “specified research or experimental expenditures under section 174.”
- 8- Modifies Section 280C(c) so that the normal deduction-for-credit interplay is preserved (if the credit determined under 41(a) exceeds the deduction for qualified or basic research expenses, the excess reduces the amount chargeable to capital, with an option to elect a reduced credit under certain rules).
- 9Expands and enriches the refundable R&D credit for startups and small businesses (Section 3).
- 10- Increases the cap on the refundable credit from a fixed $250,000 to an adjustable “applicable amount,” with a stepped schedule rising over time (up to $750,000 for some years).
- 11- Raises eligibility thresholds and start-up options:
- 12- Extends the startup eligibility window for the credit election from 5 to 8 taxable years.
- 13- Increases the gross receipts threshold from $5 million to $15 million (with a new threshold framework based on gross receipts exceeding a small amount rather than total receipts).
- 14- Updates the mechanics of the refundable credit to enable more small businesses to benefit, including adjustments to the proof-of-eligibility and the computation of the credit.
- 15- The schedule introduces annual caps that scale upward through 2035, expanding the total amount of refundable credit available to startups over time.
- 16Increases access to the R&D credit for qualified small businesses (Section 4).
- 17- Adds special rules for qualified small businesses:
- 18- The base percentage for the credit (which ordinarily is 14%) is raised to 20% for qualified small businesses.
- 19- If an additional credit component applies, the corresponding percentage is increased from 6% to 10%.
- 20- Allows an alternative: in some cases, disregard a year with no qualified research expenses when calculating the average of the 3-year period used to compute the credit.
- 21- This effectively makes the R&D credit more valuable for small startups, particularly those with significant early-stage R&D activity.
- 22Effective dates and scope.
- 23- For Section 174 changes: apply to amounts paid or incurred in taxable years beginning after December 31, 2021.
- 24- For the expanded refundable credit and startup rules (Sections 3 and 4): apply to taxable years beginning after the date of enactment (i.e., once the bill becomes law).
- 25- The bill does not extend to certain types of expenditures (e.g., exploration for ore or minerals) or to land improvements in the same way as the general R&D rules.