A Major Shift for Research and Development Costs
If your business spends money on product development, software engineering, or other research and experimental (R&E) activities, a recent change in federal tax law means you may be able to deduct R&D costs in full again, right away, instead of spreading the write-off over several years. Under the One, Big, Beautiful Bill Act (OBBBA), Congress restored immediate expensing for domestic research and experimental costs. According to the Taxpayer Advocate Service, the IRS has issued detailed guidance on how eligible businesses can make elections, amend prior returns, and change accounting methods to take advantage of the new rules.
What Changed Under the New Law
The Old Rule: Forced Amortization
Since 2022, businesses had been required to capitalize research and experimental costs under Section 174 and amortize them over five years for domestic research (fifteen years for research performed outside the United States), rather than deducting the full cost in the year incurred. For many small and mid-sized businesses, especially those investing heavily in product or software development, that rule created an unwelcome tax bill even in years with little or no actual profit.
The New Rule: Section 174A Immediate Expensing
The OBBBA created new Section 174A, which allows businesses to immediately deduct qualifying domestic research and experimental costs for tax years beginning after December 31, 2024. In practical terms, if your business incurs U.S.-based research and development costs in 2025 or later, you can generally write off the full amount in the year you spend it, rather than spreading the deduction out over time.
Can You Still Claim Relief for 2022 Through 2024?
The new law also included a limited retroactive relief option for small businesses (generally those with average annual gross receipts of $31 million or less) to elect full expensing of domestic research costs paid in 2022, 2023, or 2024, rather than continuing to amortize them. That election required filing amended returns or accounting method changes by the earlier of July 6, 2026, or the normal refund claim deadline under IRC Section 6511. If your business qualified but missed the July 6 deadline, that specific retroactive window has now closed. It is still worth confirming with a tax professional whether any other refund claim deadlines remain open for your particular tax years.
What Business Owners Should Do Now
Review How Research Costs Are Being Treated on Your 2025 Return
Even if you did not pursue retroactive relief, the going-forward change matters. Make sure your 2025 return reflects immediate expensing of qualifying domestic research costs rather than the old amortization schedule, and confirm that any required accounting method change is filed correctly, often through Form 3115.
Coordinate With Any R&D Tax Credit Claims
If your business also claims the federal research credit on Form 6765, the interaction between that credit and Section 174A expensing, including any Section 280C election, needs to be reviewed together. Getting the coordination wrong can mean leaving money on the table or creating an inconsistency the IRS may flag.
Talk to a Tax Professional Before You File or Amend
Because this involves elections, potential amended returns, and accounting method changes, this is not a do-it-yourself area of the tax code. A qualified tax professional can review your specific facts, confirm whether any deadlines remain open for your situation, and make sure your ongoing filings take full advantage of the new rules.
At Petry Tax & Advisory, we help business owners and entrepreneurs across Houston, the Woodlands, and Denver make sense of tax law changes like this one and put them to work for their bottom line. If your business has research, product development, or software costs and you are not sure how the new Section 174A rules apply to you, schedule a consultation with our team to review your options.
This post is for general informational purposes only and does not constitute legal or tax advice. Consult with a qualified professional about your specific situation.
lucy.petry@petrylawfirm.com
