As Senate Republicans push to get their tax bill passed before Christmas, a research and development (R&D) tax credit used by many businesses to boost innovation could be in trouble.

Last Friday, Republicans decided to keep the corporate alternative minimum instead of repealing it as they had originally intended. The AMT, a secondary tax with fewer tax breaks and lower rates, was put in place to stop the wealthy from artificially reducing their tax bills by using certain deductions. Businesses and individuals determine what they owe under both tax systems and pay whichever tax is greater.

The current corporate AMT is 20 percent, but most corporations face a 35 percent tax rate and can see lower rates by claiming tax breaks that aren't impacted by the AMT, according to The Wall Street Journal. However, the corporate rate could increase to 20 percent if the Senate tax bill passes, and many companies could then fall into the 20 percent AMT and lose some of their tax credits.

The tax break that could suffer the most is the R&D credit. Tech companies, pharmaceutical firms, manufacturers, and other businesses get money back from the government for some of their innovation costs, like engineers' salaries.

Corporations will claim $10.3 billion in research credits next year, according to the Journal, which cites the Joint Committee on Taxation. While the impact on the R&D tax credit would mostly impact large public companies at first, those changes will over time play a role in how future startups spend money on innovation.

Published on: Dec 4, 2017