The Tax Cuts and Jobs Act (TCJA) made significant changes to the U.S. tax code, including a rule that, beginning in 2022, required businesses to amortize Research and Development (R&D) expenses over five years. For companies that rely on upfront investment in innovation, this created unexpected cash flow challenges.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) reversed that requirement—restoring immediate expensing for most domestic R&D costs and offering timely relief for businesses focused on innovation. Below, we’ve outlined the key updates and what they mean for your business.
Immediate Expensing Restored
For tax years beginning after December 31, 2024, domestic research and experimental (R&E) expenditures are once again fully deductible in the year incurred—reverting to pre-TCJA treatment.
Relief Options by Business Type:
For Small Businesses (under $31M in avg. gross receipts):
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Retroactive Relief:
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Amended returns can be filed for tax years 2022–2024
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Requires a timely Sec. 280C election
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Must be done by July 4, 2026 (1 year from enactment)
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Awaiting guidance from Treasury on how to make the election
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IRS may require strong documentation
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Prospective Relief:
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Deduct remaining unamortized R&D costs in full in 2025, or
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Deduct them ratably over 2025 and 2026
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For Larger Businesses:
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No retroactive option
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Must choose between:
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Full deduction in 2025, or
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Split deduction over 2025–2026
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Additional Considerations
Foreign R&D
No change—foreign research expenditures must still be amortized over 15 years.
Optional Election to Continue Amortization
Taxpayers may opt to continue amortizing R&D expenses over five years if preferred.
Other Considerations
Certain taxpayers may still be required to capitalize specific R&D-related expenses under other Code sections (e.g., Section 263).
Important Deadline: July 4, 2026
Under Section 70302 of the OBBB Act, eligible small businesses seeking retroactive expensing must make the required election by July 4, 2026—one year from the bill’s enactment.
What This Means for Business Owners
The reinstatement of immediate expensing for R&D expenditures offers substantial cash flow benefits and may lower future tax liabilities. These changes also create new opportunities for proactive tax planning. Business owners should consult their tax advisor to determine whether retroactive relief or accelerated deductions make sense for their situation.
What This Means for Tax Practitioners
Despite the legislation’s passage, tax practitioners still await detailed guidance on how to apply these changes—particularly for 2024 returns. The language of the bill implies that taxpayers can expense R&D costs and claim the credit on 2024 returns, but no formal election procedures have been released. Experts recommend delaying the filing of 2024 returns until Treasury guidance is issued.
Take Action
With R&D expensing now reinstated, timing and strategy are everything. Business owners and tax professionals must act quickly to take full advantage of these provisions and ensure compliance.
Connect with a Perkins & Co tax advisor to discuss how these changes to Section 174 may impact your business.