There’s a lucrative change for small businesses in the Inflation Reduction Act
There’s a lucrative change for small businesses in the Inflation Reduction Act
The Senate on Sunday passed a sweeping health care and climate change bill, but there is also a potentially lucrative tax credit for small-business owners included in the bill.
The bill, which must still pass the House and be signed by President Joe Biden, contains a minimum tax for large corporations, provides the ability to negotiate the prices of certain drugs and invests in climate change mitigation technologies. But buried within the bill is a doubling of the refundable research and development tax credit.
That tax credit would double from $250,000 to $500,000 if the legislation were to become law. The tax credit is refundable and applied against payroll taxes and includes expenditures for a wide variety of expenses, including the improvement or development of products, processes, techniques or even software.
Sen. Maggie Hassan, D-N.H. applauded the inclusion of the tax credit boost in a press release Monday, having pushed to include the provision in the final legislation.
“New Hampshire is at the forefront of innovation, and expanding this tax cut will help more small businesses and startups advance their current efforts and create the technology of the future,” said Senator Hassan. “I am pleased that the Inflation Reduction Act includes my R&D tax credit, and I look forward to seeing all that small businesses and startups will do with it.”
And while R&D tax credits have traditionally been harder to access for small- and midsize-business owners, changes in the law and new companies offering R&D tax services have helped small-business owners unlock hundreds of thousands of dollars.
Joshua Lee, founder and CEO of Ardius, a startup owned by payroll and benefits provider Gusto Inc. that helps business owners navigate the process, previously told The Playbook businesses can qualify for the research and development tax credit if their spending meets a certain set of criteria — and can help return significant amounts of money to the business.
The doubling of the smaller, refundable tax credit comes as the R&D tax landscape itself has changed in 2022. Businesses were previously able to deduct research and development in full from that year’s taxes, but that has ended. The Tax Cuts and Jobs Act passed in 2017 changed the tax code from expensing R&D spending in the year it happens to having businesses amortize those costs over five years starting in 2022 — which experts say will hurt research efforts and put the United States at a competitive disadvantage.
The ability to deduct R&D expenses from taxes is separate from the R&D tax credit, which rewards certain kinds of research and is spread across several components. More on the tax credit can be found here.
Other tax credits and small business funding options for small businesses
And small businesses that missed out on the SBA’s Economic Injury Disaster Loan or industry-specific programs like the Restaurant Revitalization Fund still have a potentially lucrative Covid-19 relief opportunity available in the form of the Employee Retention Credit.
Attorneys, accountants and professional advisers say small businesses would be wise to give the ERC a second look if they haven’t already applied. Relatively few business owners have taken advantage of the Employee Retention Credit, according to a survey of more than 500 business owners by technology firm Clarus, which helps businesses claim the credit and concluded that only one-third of restaurant owners had taken advantage of the ERC. Experts told The Playbook that small-business owners should document everything, in order to make sure they can prove their case if the IRS has questions.
Potential RRF dollars coming, but with a catch
Meanwhile, the Small Business Administration plans to disburse the $180 million it has in remaining RRF money — just not yet. The agency confirmed in a statement to The Playbook that it was waiting to disburse any unobligated funding until after “pending litigation was resolved.”
On July 14, 2022 the Government Accountability Office reported there was $180 million in unobligated funding, about $24 million the SBA had set aside for potential litigation, and another $56 million that comes from RRF grants that were subsequently returned, as well as additional money the Treasury Department administratively offset and returned to the SBA
“The funding provided by the American Rescue Plan’s Restaurant Revitalization Fund, together with other SBA assistance programs, has helped more than 100,000 restaurant and other food and beverage business owners get back on their feet and survive the pandemic,” an SBA spokesperson told The Playbook. “When pending litigation resolves, the SBA stands ready to distribute any remaining funds and to continue to aid small businesses as they recover, pivot and grow.”
Meanwhile, Sen. Ben Cardin, D-Md., chairman of the Committee on Small Business & Entrepreneurship and one of the lawmakers behind the Paycheck Protection Program, has introduced the Hard-Hit Small Business Relief Fund Act. The bill would include about $6 billion in grants by transferring remaining funding from existing SBA grant and relief programs.
