On Independence Day 2025, President Trump signed a broad-sweeping piece of legislation into law. It’s been widely called the One Big Beautiful Bill Act (OBBBA), but the name was stripped to “the Act.” This massive document covers so much ground that some lawmakers even admitted they didn’t read it in full.
That leaves the layperson in a bit of a quandary. You probably don’t have the time (or the desire) to sit down and parse the Act. But you also don’t want to fly blind, particularly when it comes to the sections that directly affect you.
We can help, at least in part. If you own or manage a company that undertakes research and development (R&D), know this: the OBBBA impacts how you can get tax savings for those expenses. And we have good news. While the Act adds a lot of complexity to the lives of many Americans, this is one area where things get simpler now that it’s passed.
Understanding what was in place before
For companies that deduct their R&D expenses, things got complicated a few years back. The Tax Cuts and Jobs Act (TCJA) of 2017 directly and significantly changed this tax savings opportunity.
Before the TCJA and thanks to §174 of the U.S. code, companies could fully expense qualifying R&D costs in the year in which those costs were incurred. But the TCJA changed things after December 31, 2021. From 2022 up to present day, businesses had added complexity in trying to claim this tax savings.
Specifically, the TCJA required companies to amortize their R&D expenses over a set timeline. Instead of being able to claim the full expense in one year, they had to spread it out over several years. That often meant a bigger tax bill.
Per the TCJA, companies needed to amortize expenses over:
- Five years for domestic R&D
- 15 years for foreign R&D
To make things even more complicated, the amortization period started at the midpoint of the company’s tax year.
Unsurprisingly, business owners and investors weren’t happy with this change. Past attempts to undo the amortization requirement have failed (see: the American Innovation and Jobs Act). But the Act finally got the job done.
How the Act’s §70302 affects R&D
- 70302’s title — Full Expensing of Domestic Research and Experimental Expenditures — gives the gist of it away. From December 31, 2024 on, American companies can now fully expense their domestic R&D costs in the year they incur them.
Keep in mind that all of the same rules as before apply to this tax savings opportunity. The four-part test is still in play to confirm that an expense qualifies under this tax provision, for example. Your accountant should be able to help you figure out what you can and can’t expense here.
Still, this change should be a boon to companies that invest in domestic R&D. Thanks to the Act, lowering your tax bill — and complying with IRS requirements — got much easier. Beyond that, §70302 implements a few transition rules and additional adjustments that could be helpful to your company.
Before we get into that, though, let’s clarify one key thing: the Act’s changes to R&D expensing only apply to domestically incurred costs. If you’re conducting R&D abroad, you’ll still need to amortize those expenses over the 15-year period set up by the TCJA.
Now, let’s get to the transition rules from §70302 subsection (f) that your company might want to tap.
Accelerated amortization for R&D expenses from 2022–2024
- 70302 includes a section that allows you to accelerate your deductions for eligible R&D expenditures your company incurred between 2022 and 2024. You’ll find this under the transition rule called “Election to deduct certain unamortized amounts paid or incurred in taxable years beginning before January 1, 2025.”
You have two options here. You can:
- Fully deduct any remaining unamortized amounts in your company’s first taxable year that starts after December 31, 2024
- Deduct any remaining unamortized amount ratably over a two-year period that starts in your company’s first taxable year after December 31, 2024
In other words, if you’re currently amortizing R&D expenses from the last few years, you can either fully deduct them or split that deduction over the next two years.
Amended return options for small businesses
- 70302 lays out a transition rule called “Election for retroactive application by certain small businesses.” It changes the effective date for this tax provision from December 31, 2024 to December 31, 2021 for qualifying small businesses.
Companies that qualify are those considered small businesses under §448(c) of the Internal Revenue Code (IRC). Basically, you’re a small business if you average out your annual gross receipts for the last three tax years and they don’t exceed a threshold amount.
The Senate Finance Committee says that this transition rule for retroactive application applies to companies with average annual gross receipts of $31 million or less.
If your company fits into that bucket, you can file amended returns for the last few taxable years. If you invest heavily in R&D, this can help you recoup some serious money from the IRS.
Act now to take full advantage of the Act’s R&D changes
If your company wants to tap either of the transition rules to either accelerate the amortization of R&D costs or file amended returns, now’s the time to start moving. The “Election for retroactive application” rule only gives businesses one year from the enactment date (July 4, 2025) to file amended returns.
Getting together with your accountant now to see how these R&D tax provision changes affect your business can pay big. Be advised, though, that some of the details here are still forthcoming. We’re waiting on the Treasury Department to publish guidance around the specifics here. Still, knowing what amortization you can accelerate or where you can amend your returns sets you up for success. There’s a chance the already pressed-thin IRS will get slammed with amended returns, so getting yours in early helps you get your refund check faster.
To meet with a team that specializes in R&D taxation, contact us.
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