Intellectual property may soon be deductible

What if we told you that you could deduct 71 percent of your company’s income derived from qualifying intellectual property (IP)—that patents, inventions, formulas, processes, knowhow, computer software, and any other IP could qualify?

Thanks to the Innovation Promotion Act of 2015, that could soon be the case. Charles Boustany and Richard Neal, two members of the U.S. House Ways and Means Committee, have drafted a proposal whereby American businesses could benefit from a lower tax rate on income derived from qualified IP. Boustany and Neal have proposed creating an “innovation box,” similar to the “patent box tax” systems used in other countries, which will lower the tax rate for IP-related income.

Boustany and Neal are proposing for corporations to deduct 71% of their income derived from qualifying IP, which would translate into an effective tax rate of 10.15% on all innovation box profits. This is a big stride in the effort to keep and attract IP development in the United States.

The Act is still in the proposal and developmental phase, but the “innovation box” method of taxation would be a significant tax benefit to U.S. companies with profits from IP. And many companies would be incentivized to keep their research and development facilities and IP in the United States rather than overseas where this concept is already in effect.