Legislative Update on 174 Amortization Req. for 2023 Tax Returns

As a follow-up to my update in early April about the status of the proposed 174 amortization repeal tax bill, I wanted to update McGuire Sponsel’s alliance partners and clients. Despite our best efforts, it appears that H.R. 7024 will not have a positive outcome in the U.S. Senate. Every week, we diligently participate in calls on this matter with various entities, including the Main Street Innovation Coalition. This group of companies, alongside McGuire Sponsel, has invested significant time and finance to work with D.C. consultants and connect with our elected representatives. Despite strong efforts, it is highly unlikely that the 174 amortization requirements will be repealed before the 2023 tax filing season.

Senate Republicans’ opposition to the expansion of Child Tax Credits and the politics of an election year has proven too much to overcome for this critical tax legislation. As a business owner and someone who has spoken with countless clients about the hardship 174 amortization has placed on their businesses’ cash flow and overall financial health, I share this outlook with empathy and trepidation for closely held businesses. While some may say that 174 amortization is a “timing issue,” it still creates challenges for companies in addition to the ongoing pressures of operating a company. The way the math works as it relates to 174 amortization and the R&D Tax Credit, amortizing a company’s R&D investments is a three-year period (2022, 2023, and 2024) of increased tax liabilities before the tranches of annual amortization expense reduce overall tax liability.

Throughout the past 18 months, McGuire Sponsel has pledged to keep our network informed as the possibility of a “174 fix” progressed. Since many companies have placed their 2023 tax returns on extension, hoping the tax bill will pass this summer, I wanted to provide the most updated information. With all that we know, I recommend moving forward with preparing 2023 tax returns with the 174 amortization requirement.

Rest assured, McGuire Sponsel will continue to provide timely updates and recommendations as we navigate through these tax changes. We understand the frustration and ambiguity the legislation has on CPAs and the burden that 174 amortization places on our clients.