Research & development (R&D) tax incentives have long been a vital tool for U.S. companies to lower their tax burden and spur innovation. In July 2025, the “One Big Beautiful Bill Act” (OBBBA) reversed a portion of the Tax Cuts and Jobs Act (TCJA) R&D amortization rules, providing relief to businesses that have been forced to capitalize—and slowly amortize—innovative expenses since 2022. Below is a deep dive into the OBBBA reforms as well as several critical considerations that many commentary pieces have overlooked.
When you pour resources into developing new products, processes, or software, the IRS has long rewarded you with two tax breaks:
- Immediate Deduction (Section 174): Write off your R&D costs right away against your income.
- R&D Tax Credit (Section 41): A dollar-for-dollar credit based on qualified research expenses (like wages, materials, and third-party research).
Together, these breaks can slash your tax bill by tens or even hundreds of thousands—funds you can plow back into your “next big thing.”
What Went Wrong in 2022
Under the 2017 Tax Cuts and Jobs Act, Congress eliminated the immediate write-off for R&D costs. Starting in tax year 2022:
- Domestic R&D expenses had to be capitalized and then amortized ratably over five years.
- Foreign R&D got stretched out even longer—over 15 years.
That meant innovators couldn’t deduct all of their development spend in the year it happened. Instead, they were stuck recovering costs bit by bit, making their early-stage cash flow much tighter.
The Big Win: What the OBBBA Restores
Section 70302 of the OBBBA reverses that penalty and brings back immediate expensing for U.S. R&D. Here’s the bottom line:
- Full Deduction in 2025 and Beyond
Beginning with your 2025 tax return, you can once again deduct 100 percent of domestic R&D costs in the year you incur them—just like it used to be neo.tax.
- Catch-Up Deduction for 2022–2024
If you were forced to capitalize R&D from 2022 through 2024, you get a one-time “catch-up” in 2025—wiping out every remaining unamortized dollar in one swoop philadelphiapact.com.
- Retroactive Relief for Small Businesses
Companies with average annual gross receipts under $31 million can elect to treat all R&D expenses from 2022–2024 as immediately deductible—and even amend those past returns to pull cash back into your business Clark Schaefer Hackett.
What This Means for You as a Founder
- Instant Cash Flow Boost
Instead of waiting years to see tax savings, you’ll get them in the same year you spend—freeing up cash for hiring, marketing, or that next product iteration. - Simpler Tax Planning
No more multi-year amortization schedules to track. Your finance team can focus on forward-looking forecasts, not decoding old R&D write-offs. - Greater Upside on Investment
With more predictable and immediate savings, you can model ROI on new projects with confidence—and make bolder bets on innovation. - Opportunity to Reclaim Past Spend
If you qualify as a smaller business, amending 2022–2024 returns could mean a meaningful refund landing in your bank account this year. - Your ability to deduct R&D expenses under Section 174 has changed—but, the Section 41 R&D tax credit itself is unchanged. Only the treatment of R&D expense deductions was affected.
Quick Action Checklist
- Talk to Your Advisor Today
Make sure your CPA or tax counsel is aware of the OBBBA changes—and can help you file the catch-up election or amended returns where eligible. If you don’t have a CPA or tax counsel, let’s chat!
- Gather Your R&D Data
Compile your 2022–2024 R&D spend details: wages, contracts, materials. That intel powers your catch-up and credit calculations.
- Sync Federal & State Credits
Many states mirror federal R&D rules. Coordinate your elections so you’re not leaving any credits on the table.
- Update Your Financial Forecast
Plug in the restored deductions to your 2025 projections—your burn rate may just look a lot healthier.
Innovation is the engine of growth for any startup or scale-up. Thanks to the OBBBA, you can now shift more dollars back into R&D and future product roadmaps—rather than losing them to amortization rules. By moving quickly to claim these restored deductions, you’ll maximize your cash runway and keep your team laser-focused on building what’s next.
