On July 1, 2025, the U.S. Senate passed the One Big Beautiful Bill Act (OBBBA) in a dramatic 51–50 vote, with Vice President JD Vance casting the tiebreaker. This pivotal legislation now advances to the House of Representatives and delivers retroactive Section 174 relief for small and medium-sized enterprises (SMEs), allowing immediate expensing of research and experimental (R&E) costs back to 2022. For innovative businesses, this could mean millions in tax savings.
Key Section 174 R&E Provisions for SMEs
Who Qualifies?
- SMEs with average annual gross receipts of $31 million or less.
What’s Included?
- Retroactive Expensing (2022–2024): SMEs can immediately deduct domestic R&E costs, such as software development and product innovation, for tax years starting after December 31, 2021. Amending 2022–2024 returns could recover significant tax payments.
- Permanent Relief: The Senate proposes permanent immediate expensing for domestic R&E, unlike the House’s temporary 2025–2029 window.
- Foreign R&E Unchanged: Foreign R&E costs remain amortized over 15 years, with no retroactive relief.
- Simplified Compliance: Transitions to immediate expensing are automatic, with no Section 481(a) adjustments required.
This relief could unlock $6 billion in R&D credits and $240 billion in deductions, especially benefiting tech, manufacturing, and biotech SMEs. For a detailed breakdown, see our in-depth analysis on Section 174 repeal and its impact on SMEs.
Why Section 174 Relief Matters for Your Business
- Increased Cash Flow: Recover taxes from 2022–2024. For example, a $2 million annual R&D spend could yield nearly $1 million in savings at a 21% corporate rate.
- Innovation Boost: Reinvest savings into R&D, hiring, or expansion to stay competitive.
- Tax Certainty: Permanent expensing eliminates future amortization uncertainties.
Curious about your potential R&D tax savings? Use our R&D Tax Credit Calculator to estimate your benefits instantly.
What Happens Next with the OBBBA?
The bill now heads to the House of Representatives, which passed its version on May 22, 2025, without retroactive Section 174 relief. The House can either:
- Approve the Senate Version: If passed unchanged, the bill reaches President Trump for signing, potentially by July 4, 2025.
- Reconcile Differences: House-Senate negotiations could adjust retroactive relief. Bipartisan R&D support and President Trump’s push for passage bolster its chances (estimated 70% probability of retention).
Fiscal concerns, with the bill adding $3.3–$4 trillion to the deficit, and House priorities like SALT deductions may complicate reconciliation.
How SMEs Can Act Now
- Partner with Tax Experts: Engage R&D tax specialists to evaluate eligibility and prepare amended 2022–2024 returns.
- Track House Votes: Monitor updates on Congress.gov
- Plan Strategically: Optimize 2025 R&D budgets with permanent expensing in mind.
Maximize R&D Tax Savings with StrikeTax
The Senate’s OBBBA passage is a landmark for SMEs navigating Section 174 R&E challenges. At StrikeTax Advisory, our experts help you claim every eligible R&D credit and deduction, from amending past returns to planning future investments. Don’t miss this opportunity to boost your bottom line. Contact us today to unlock your R&D tax savings!
