The Return of R&D Expensing – What It Means for Your Business

For many companies, R&D is the lifeblood of business growth. Yet for years, the way businesses could recover their R&D investments through tax deductions felt more like a roadblock than a boost. The enactment of the Tax Cuts & Jobs Act (“TCJA”) in 2017 forced U.S. companies to stretch their R&D deductions out over six years, strangling cash flow and punishing startups in particular that often operated at a book loss but ended up having taxable income due to the delayed R&D deduction.

Now, the One Big Beautiful Bill Act (“OBBBA”) has reopened the door to immediate deductions for domestic R&D. For founders, CFOs, and technical leaders, this isn’t just a tax footnote — it’s a game-changer for how innovation gets funded.

Why This Matters

• Deductions Today, Not Six Years from Now
  Businesses can once again expense qualified domestic R&D costs in the year incurred. That means more working capital now to reinvest in engineers, labs, or product launches.
• A Clear Incentive to Keep R&D at Home
  Domestic research qualifies for immediate deductions, while foreign research still faces a 15-year amortization.  The message from Washington is clear: keep your innovation U.S.-based.
• A Retroactive “Do-Over”
  If you capitalized R&D costs between 2022–2024, OBBBA offers relief through catch-up amortization in 2025 or split between 2025/2026.

Small Business Spotlight

If your company averages $31M or less in gross receipts, the ability to deduct capitalized costs from prior years and recoup taxes paid is especially meaningful. This cash could fuel hiring, accelerate a product roadmap, or simply strengthen your balance sheet. But the window is time-sensitive — the IRS imposed a deadline; the earlier of the original statutory deadline or July 6, 2026 to elect the R&D deduction for 2022-2024.  A taxpayer still has the 3-year statute of limitations to file the amended returns to claim the deduction.. IRS guidance also allows taking an accelerated deduction of unamortized 2022 – 2023 R&D on an originally filed 2024 return.

Because of the interplay between the reduced credit election under 280C and the Section 174 capitalization, it may not always be in the best interests of the company to accelerate the deduction. Modified Section 280C(c)(1) eliminated the disallowance of expense reduction by the amount of the credit for companies taking the full credit since 100% of the costs were being capitalized leading many companies to claim the Full R&D credit rather than the reduced credit under 280C. For companies that are going back to amend or accelerate the R&D expenses, they are required to either make a late 280C election to take a reduced credit or reduce the deductible R&D expenses by the amount of the credit.  In short, a taxpayer amending returns to fully deduct the Section 174 R&E or accelerating the deductions on the 2024 originally filed return must reduce the R&D credits from those years by 21%.

Companies that were in taxable losses in 2022 – 2024 likely want to defer the acceleration to preserve the full credit. On the other hand, companies that paid taxes in 2022 – 2024 and are anticipating taxable losses going forward, may be better served by getting a refund of those taxes paid even if it reduces their R&D credit or Net Operating Loss carryforward.

Strategic Next Steps

1. Run the Numbers – Model how immediate expensing impacts your 2025 forecast.
2. Review Prior Years – Identify whether amended returns could unlock refunds.
3. Tighten Documentation – The IRS will scrutinize these claims. Make sure your R&D projects are well-documented.

Conclusion

With the OBBBA, companies finally have breathing room again. The restoration of immediate domestic R&D deductions isn’t just about tax compliance — it’s about restoring momentum to innovation. Whether you’re a startup building your first prototype or an established player scaling new products, this change is designed to give you capital when you need it most: now. For additional information call 801.532.7444 or click here to contact us. We look forward to speaking with you soon.