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By Kevin Zolriasatain and Paul McVoy | Principals, Research & Development Tax Credits
For the last two years, companies conducting qualified research have been burdened with an unfavorable tax provision that has made Research and Development (R&D) investments more expensive, at precisely the wrong time. That’s about to change.
Thanks to the One Big Beautiful Bill Act, domestic research expenditures can once again be fully expensed starting in 2025, giving U.S. businesses much-needed relief. And for companies that capitalized R&D under the old Section 174 rules in 2022–2024, there may be an opportunity to retroactively claim those deductions.
The bill restores the ability to fully deduct domestic R&D costs in the year they are incurred. Under the new Section 174A, taxpayers are no longer required to amortize these costs over five years. This reinstates the traditional treatment that was in place for decades before the Tax Cuts and Jobs Act (TCJA) changes took effect in 2017.
Key Highlights
- Full expensing applies to domestic research and experimental (R&E) expenditures.
- Foreign R&E must still be amortized over 15 years.
- Small businesses meeting the gross receipts test under IRC Section 448(c) may retroactively adopt full expensing for 2022–2024, creating opportunities for potential refund claims by filing amended returns.
- Starting in 2025, businesses can elect to fully expense R&D costs entirely in 2025 or spread them over two years (2025 and 2026) to optimize cash flow.
What This Means for 2022–2024
If your company capitalized and amortized R&D costs in 2022, 2023, or 2024 there may be an opportunity to revisit those years. The law allows eligible small businesses to retroactively adopt full expensing for domestic R&D costs, potentially unlocking significant deductions.
This creates opportunities for businesses to put cash back in their pockets through amended returns and accounting-method changes.
Example #1:
A company that incurred $1.5 million in qualified domestic R&D expenses in 2023 may have deducted only $150,000 due to 5-year amortization. In 2025, under the new rules, they could now deduct the full $1.5 million, reducing taxable income and potentially triggering a refund.
Example #2:
Now assume the same facts as above: A business incurred $1.5 million in qualified domestic R&D expenses in 2023, but this time the company qualifies as a small business under IRC Section 448(c). Under the new law, the company may retroactively elect full expensing and amend its 2023 tax return to claim the additional $1.35 million deduction that was previously capitalized.
This retroactive election could result in a substantial refund and improved cash flow.
The R&D Tax Credit Still Matters—Now More Than Ever
Now that full expensing of domestic R&D costs is back, some companies may feel tempted to skip the R&D tax credit under Section 41. That would be a costly mistake.
Here’s why:
- Amortization vs. credit: The old Section 174 amortization rule was a temporary timing difference—a deferral of deductions, not a loss of them. But not claiming the R&D credit is a permanent difference. You don’t get that money back later. Once the return is filed without it, the benefit is gone unless you amend in the future to take it.
- Timely filing matters: Claiming the credit on a timely filed original return is the cleanest path forward. You avoid the heightened substantiation requirements of the Chief Counsel Memorandum (CCM), which applies to credits claimed on amended returns.
- Avoid audit red flags: Amending a return solely to add the R&D credit can increase IRS scrutiny. Proactively claiming the credit on the original return shows that you had contemporaneous documentation and confidence in your position.
Next Steps
- Review past filings. Did you capitalize R&D in 2022, 2023, or 2024? You may be able to amend or elect to expense fully.
- Update 2024 tax planning. Expect to claim full deductions for domestic R&D beginning in 2025, so you’ll want a clean baseline starting with 2024.
- Get support for your credit. Section 41 still requires substantiation. If you’re claiming the credit, it’s time to align your documentation.
Let’s Talk
If you capitalized R&D costs in prior years or want to ensure you’re taking full advantage of this long-overdue fix, now is the time to act. At KBKG, we help clients not only calculate and maximize their R&D credit, but also time it properly and prepare defensible documentation—the kind the IRS expects. With full expensing back in place, now is the right time to make sure you’re getting the full benefit of your R&D efforts, both in deductions and credits.
Contact KBKG
Speak with a specialist or schedule a no-cost consultation to review your filing strategy.
Related Resources & Suggested Tools
Full text of the OBBB Act Section 174A Repeal
R&D Savings Calculator
KBKG R&D Qualification Checklist
Dash.tax (R&D Tax Credit Software)
Schedule your KBKG consultation now
About the Authors
Kevin Zolriasatain | Principal – Research & Development Tax Credits
Kevin Zolriasatain is a Principal and the Practice Leader of KBKG’s Research and Development (R&D) Tax Credit Services. Prior to KBKG, he spent nearly a decade at PricewaterhouseCoopers focusing on securing R&D Tax Credits for Fortune 500 companies. Kevin enjoys working with mall to mid-size business owners and, over his career, has documented hundreds of millions of dollars in research credits… Read More
Paul McVoy | Principal – Research & Development Tax Credits
Paul McVoy is a Principal for KBKG’s Tax Credit Consulting practice. In this role, Paul devotes his time to consulting companies in maximizing their R&D tax credit claims. Prior to joining KBKG, Paul was a manager at a Big Four accounting firm out of the Philadelphia, San Diego, and Los Angeles offices. Paul McVoy has spent nearly 20 years in public accounting, leveraging previous tax compliance… Read More