NASHVILLE, Tenn. – U.S. Senator Marsha Blackburn (R-Tenn.) introduced the American Innovation Act to spur new business innovation by expanding tax incentives for offsetting startup costs and removing initial barriers for creating new businesses:

U.S. Representative Vern Buchanan (R-Fla.) introduced companion legislation in the House.

BACKGROUND

• Startup costs are the upfront costs a business incurs while determining whether to create or acquire a business and while getting that business off the ground. They include expenses like researching potential markets or products, studying labor availability or logistics, advertising before opening, paying and training early employees, conducting surveys and market studies, and covering basic expenses like rent and utilities during the startup phase. 

• Startup costs are required to be amortized over 15 years, with the exception of a limited amount that can be deducted in the first year. This amount has been set at $5,000 since the American Jobs Creation Act of 2004 was signed into law, with a phase-out for this deduction starting at $50,000.

• According to the Small Business Administration, over 50% of new small businesses established between 1994-2001 failed within five years. A U.S. Census Bureau report also found that 46% of businesses began with less than $25,000, underscoring the need to support small businesses with increased access to capital at the early stages of business creation.

AMERICAN INNOVATION ACT

• The American Innovation Act would promote new business innovation by expanding the deduction allowance for startup costs associated with new businesses. Specifically the bill would:

o    Quadruple the amount of startup costs small business owners can deduct in the first year, raising it from $5,000 to $20,000;

o    Increase the phase-out threshold for deductions from $50,000 to $120,000; and

o    Allow partnerships and S corporations to take advantage of the deduction.

ENDORSEMENTS

This legislation is supported by the Small Business & Entrepreneurship Council:

“These reforms put more resources into the hands of entrepreneurs during their critical launch year, empowering founders to reinvest in their companies. By lowering the tax burden on risk-taking and innovation, the ‘American Innovation Act’ supports job creation, fuels investment, and strengthens the broader economy. SBE Council applauds Senator Blackburn for her leadership in introducing this important legislation, and we urge every member of the U.S. Senate to strengthen entrepreneurship by supporting this important bill,” said Karen Kerrigan, President & CEO of the Small Business & Entrepreneurship Council.

Click here for bill text.