Insights

New Federal Tax Law: R&D Deduction Changes

The “One Big Beautiful Bill” (OBBBA) introduces significant changes to the tax treatment of research and development (R&D) expenses, offering opportunities for businesses, particularly small to mid-sized ones.

Key Changes

• Permanent Expensing: Starting after December 31, 2024, businesses can fully deduct domestic R&D expenses in the year incurred, reversing the 2017 rule requiring five-year amortization.
• Accelerated Amortization: Businesses can deduct unamortized domestic R&D expenses in 2025 or spread them over 2025–2026.
• Retroactive Relief for Small Businesses: Companies with average gross receipts of $31 million or less (prior to 2025) can amend 2022–2024 tax returns to deduct R&D expenses, with a one-year window from the law’s enactment.

Strategic Opportunities
Businesses should reassess tax strategies to maximize deductions and R&D credits, ensuring optimal tax benefits through careful planning.

Summary
The OBBBA lowers R&D costs for U.S. businesses by allowing immediate expensing of domestic R&D, expanding tax credits, and providing retroactive relief, particularly benefiting startups, small businesses, and manufacturers. Permanent expensing ensures long-term investment certainty. For specific tax planning, businesses should consult professionals.

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The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.