The American Innovation Act of 2025 incentivizes entrepreneurship by increasing tax deductions for start-up costs, allowing unused losses and credits to be preserved after an ownership change under certain conditions.
Vern Buchanan
Representative
FL-16
The American Innovation Act of 2025 modifies the tax code to simplify and expand deductions for start-up and organizational expenditures for new businesses, allowing businesses to deduct up to $20,000 in start-up costs in the first year. The Act also preserves start-up net operating losses and tax credits after an ownership change, with specific conditions to ensure the continuation of the business. These changes aim to support new businesses by providing more immediate tax relief and ensuring that their losses and credits are not entirely forfeited after an ownership change. The provisions of this act generally apply to businesses starting after December 31, 2025.
American Innovation Act Lets New Businesses Deduct $20K Upfront, Starting 2026
The American Innovation Act of 2025 is all about making it easier for new businesses to get off the ground by tweaking how they handle start-up costs and taxes. It aims to simplify taxes and preserve certain tax benefits, even if the company changes hands. Here are the key parts:
Cash Flow Kickstart
The bill lets businesses deduct up to $20,000 in start-up and organizational costs right away. Think of things like the costs to set up an LLC, initial marketing, or even getting that first office space. If you spent less than $120,000 getting started, you can deduct the full amount you spent, up to $20,000. If you spent more, the $20,000 deduction starts to shrink. Anything you can't deduct right away can be spread out over 15 years (Sec. 2). This means more cash in hand during those crucial early months. Starting in 2027, these numbers will be adjusted for inflation (Sec. 2).
- Real-world example: Imagine a food truck owner. They can immediately deduct costs for things like permits, initial supplies, and maybe even part of the truck itself, up to that $20,000 limit. This is way better than the old rules, which had a much lower immediate deduction limit.
Keeping Tax Breaks After a Sale
Normally, if a company changes ownership, some tax benefits like net operating losses (NOLs) and tax credits can get slashed. This bill changes that for new businesses. If a startup gets bought out, it can still use those NOLs and credits, as long as it keeps the original business running for at least two years after the sale (Sec. 3). This encourages investment in startups, because buyers know they won't lose valuable tax breaks. This only applies to businesses that get started after January 31, 2026 (Sec. 3).
- Real-world example: A small tech startup that's been losing money (common in the early years) can be a more attractive acquisition target, because the buyer can use those losses to offset their own taxes, provided they keep the core business alive.
No Free Lunch
There's one catch: you can't deduct fees paid to promote the sale of partnership interests (Sec. 2). This closes a potential loophole and keeps the focus on genuine start-up costs.
When Does This All Happen?
The main changes to start-up deductions kick in for businesses starting after December 31, 2025 (Sec. 2). The rules about preserving tax benefits after ownership changes apply to tax years ending after January 31, 2025 (Sec. 3).