The One Big Beautiful Bill Changed R&D Tax Rules. Here’s What it Means for Your Business.
What it Means for Your Business
Summary
The R&D Tax Credit changes made in summer 2025 allow taxpayers meeting certain criteria to make a retroactive election to deduct, versus amortize research and experimentation (R&E) expenses. The One Big Beautiful Bill Act (OBBBA) introduced new IRC Section 174A, which reinstated immediate R&E expensing and, for qualifying small businesses, allows them to claim credits for select previous years. The catch? Time is running out for this. The time to claim is now.
The Background (What Changed)
For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act (TCJA) - enacted in 2017 - required businesses to amortize domestic R&E expenses over five years rather than deducting them immediately, which was a major cash-flow problem for innovative companies. (Example: a company incurring $100,000 in qualifying R&E expenditures in 2022 could only deduct $10,000 that year - just 10% - due to the half-year convention. The remaining balance was amortized over the following four years, representing a 90% reduction in first-year deductibility.)
That changed when the OBBBA was signed into law on July 4, 2025. Domestic R&D expenses, including software development, payroll, and contractors, are now fully deductible in the year incurred, which eliminates the prior five-year amortization requirement.
July 6, 2026 Deadline
The filing deadline under Rev. Proc. 2025-28 is the earlier of July 6, 2026, or the claim for credit or refund due date under Section 6511 for that year. The deadline to make this election is July 6, 2026, exactly one year after the bill became law. Businesses will have to attach a statement with each amended return that confirms small business status and shows the election choice.
There is an important nuance on the 2022 statute of limitations, though: for 2022 returns filed April 15, 2023, that statute closes April 15, 2026, meaning the effective deadline for 2022 might be even earlier than July 6. That is why it is imperative to file for these tax credits as soon as possible.
Who Qualifies for Retroactive R&D Tax Expensing Relief?
If your business averages $31M or less in annual gross receipts per Section 448(c), you may be eligible to apply the Section 174 fix retroactively for tax years 2022–2024 by filing amended returns.
The IRC Section 448(c) gross receipts test determines if a business qualifies as a small business taxpayer. This is met if average annual gross receipts for the three preceding tax years do not exceed an inflation adjusted certain threshold. These are $29M for 2023, $30M for 2024, and $31M for 2025.
The caveat: the election for retroactive relief requires amending all three years. Businesses may not choose specific years to amend.
Can Larger Businesses File?
Companies over the $31M/year threshold cannot amend prior years and not amortize research and experimentation expenses, but they have three options for their unamortized 2022–2024 domestic deductions: accelerate them over one year (2025), accelerate over two years (2025–2026), or continue amortizing over the original five-year schedule (no action required).
What's the Real-World Dollar Opportunity for these R&D Tax Credits?
Multiple clients of RK Partners have received tax credits across many sectors, with zero audits and situations in which RK has even uncovered overlooked qualifying activities, resulting in a supplement manufacturer increasing its annual claim from $120,000 per year to over $1.12 million.
- A software/cybersecurity firm developed proprietary threat detection software and secured $441K in R&D credits.
- A wean-to-finish pig farm formulated and tested experimental diets to improve the health of the animals and improve carcass quality, obtained $2.9M in credits.
- A custom manufacturing firm designed and tested new custom-engineered equipment and received $95K in credits.
These are just a few examples of who can and have claimed R&D tax credits.
In addition to favorable research expense deductions, the tax court recently decided the George v. Commissioner case, which produced a notable but mixed ruling: while thetaxpayer prevailed on only a portion of its claimed credit, the case established for the first time that animal agriculture can qualify for R&D credits. It also reinforced that research credits cannot be substantiated by testimony alone - thorough documentation is essential. There remains a significant potential for many companies to claim these credits.
What Should Small Businesses Do Now to Claim R&D Tax Credits?
The window for going back and getting these numbers right is narrow, so it’s imperative to start the process now.
- Determine if you meet the $31M gross receipts threshold.
- Pull all 2022-2024 expense records.
- Assess whether you previously amortized domestic research and experimentation costs.
- Decide on the section 174/174A election strategy.
- Be aware of your specific state conformity, as each state's R&D tax credit laws will differ.
- File amended returns before or earlier than the July 6, 2026 deadline, or your applicable statute of limitations.
Conclusion
While this can sound overwhelming, the tax attorneys, CPAs, and consultants at RK Partners are specifically trained to help you manage R&D tax credit claims. We can help your company determine if your activities fit the four-part test set forth by the IRS, which activities qualify, and walk you through the process. Contact us for a no-risk consultation today.
