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Key Legislative Change Impacting R&D Tax Treatment:
On July 4, 2023, Congress passed a significant piece of legislation, the One Big Beautiful Bill, which included a retroactive change allowing U.S. companies to immediately expense their research and development (R&D) costs starting in 2025. Previously, companies were required to amortize these costs over five years, affecting their reported earnings and cash flows. This change is expected to unlock substantial surprise cash flows and tax benefits for companies investing in innovation.
Notable beneficiaries of this change could include Lyft, which spends approximately $375 million annually on R&D, and Unity Software, which has an R&D-to-revenue ratio of nearly 70%. Other companies like Snap Inc. and Rivian Automotive are also positioned to gain significantly from this shift in accounting practices, potentially leading to improved perception in the market as they report enhanced earnings metrics.
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