Tax incentives encouraging businesses to invest in research and development (R&D) are an essential financial benefit for early-stage companies and their founders. However, a recent law change poses a potential obstacle to reaping these rewards. The change could result in an early-stage company transitioning from a loss position to generating taxable income for the first time. It could also dramatically inflate the assets on an early-stage company's balance sheet, which could end its status as a qualified small business under Sec. 1202.

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