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The U.S. House of Representatives has passed the One Big Beautiful Bill Act (OBBBA), repealing Section 174 amortization for domestic research and experimental (R&E) expenses and restoring immediate expensing starting in 2025. This provides significant retroactive relief for eligible small businesses on 2022–2024 costs, unlocking tax refunds, improved cash flow, and enhanced Section 41 R&D tax credits. The bill targets innovation in tech, manufacturing, and life sciences, where most credits are claimed.
This landmark passage reverses a major TCJA burden and incentivizes U.S.-based innovation. Monitor for Senate action, enactment, and IRS guidance. Read on for detailed scenarios, FAQs, and filing strategies.
By Jonathan Cardella, Founder & CEO, Strike Tax Advisory - The R&D Tax Credit Experts
The R&D Tax Credits landscape has shifted dramatically. Upon President Trump’s signature on the One Big Beautiful Bill Act (OBBBA), Section 174 amortization will be officially repealed—and for small businesses, the news is even better: you may be eligible for retroactive relief and immediate tax refunds, looking back to 2022. Additionally, the ability to deduct the full amount of the current year’s R&D expenses, will be made permanent.
Since 2022, Section 174 required businesses to amortize U.S. R&D expenses over five years (and 15 years for foreign R&D), reducing immediate deductions and squeezing cash flow for innovative companies. This change locked up billions in deductions for startups and established firms alike, that have been performing R&D.
Companies with capitalized domestic R&D expenses from 2022–2024 can opt for a catch-up deduction, boosting cash flow for innovative firms. Eligible small businesses (under $31M in gross receipts per year) may also retroactively apply full expensing for tax years starting after 2021, enabling them to amend prior returns and reclaim previously amortized costs. “R&D”, in this context, includes nearly all domestic software development expenses, including qualified payroll and contractor expenses, therefore, this a potential windfall to millions of small businesses.
With the OBBBA now about to be law, domestic R&D expenses become fully deductible in the year incurred. This means:
If your business has average annual gross receipts of $31 million or less (using the Section 448(c) test), you can apply the Section 174 repeal retroactively for tax years beginning after December 31, 2021.
Estimate your R&D Tax Credit savings in a couple of minutes.
If your receipts exceed $31 million, you’re not eligible for full retroactive relief. However, you can accelerate any unamortized domestic R&D deductions from 2022–2024 over one or two years starting in 2025.
Note: Foreign R&D expenses must still be amortized over 15 years for all companies.
Restoring immediate expensing under Section 174 means:
If your business has average annual gross receipts of $31 million or less (using the Section 448(c) test):
If your business has average annual gross receipts above $31 million:
For all businesses:
Summary Table: What Happens Under Each Scenario (Section 174 Repeal Scenarios)
Ready to maximize your R&D tax credits and claim your refunds?
Contact StrikeTax Advisors’s R&D Tax Credit team for a free consultation, personalized analysis, and try our R&D Tax Credit Calculator to estimate your potential benefit.
To determine eligibility, calculate your business’s average annual gross receipts for the three taxable years preceding the tax year in question, following the aggregation rules under Internal Revenue Code Section 448(c).
Be sure to aggregate gross receipts from all related businesses under common control or as part of a controlled group, as required by the Section 448(c) rules. If your calculated average is $31 million or less, your business qualifies for the small business retroactive repeal of Section 174 amortization.
Yes. The IRS requires that all members of a controlled group, affiliated service group, or businesses under common control be treated as a single employer for the gross receipts test. This means you must combine receipts from all related entities to determine if you meet the $31 million threshold.
Yes. If your business was not in existence for the entire three-year period, calculate your average annual gross receipts based on the period your business has existed. For short tax years, you must annualize your gross receipts (multiply by 12 and divide by the number of months in the short period).
Only if both the partnership or S corporation and the individual partners or shareholders meet the gross receipts test for the relevant tax year. Both levels must qualify for the small business relief to apply.
Under the new law, while immediate expensing of domestic R&D expenditures is now allowed for tax years beginning after December 31, 2024, you may still elect to amortize certain domestic research and experimental expenditures over a period of not less than 60 months, if beneficial, to preserve expenses to offset future expected taxable income. This provides flexibility for businesses that may want to spread deductions over multiple years for strategic tax planning.
The changes enacted by the OBBBA only apply to domestic research and experimental expenditures. Foreign R&D expenses must still be amortized over 15 years and do not qualify for immediate expensing under the new law.
If you are not eligible or choose not to amend prior returns, you may elect to accelerate any unamortized domestic research expenditures from earlier years. These remaining balances can be deducted either all at once in 2025 or spread evenly over 2025 and 2026, depending on your election and accounting method change. This allows you to catch up on deductions for R&D costs that were previously being amortized.
