The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. One key change included as part of the tax bill is the permanent reinstatement of full, immediate expensing of domestic research and experimental (R&E) expenses.
What has changed?
- The new rule replaces the prior requirement to amortize R&D expenses over 5 years.
- Foreign R&E costs still must be capitalized and amortized over 15 years, preserving the distinction between domestic and foreign treatment.
- Taxpayers may now fully deduct domestic R&D costs in the year incurred (for tax years beginning after December 31, 2024)
- Alternatively, taxpayers may elect to amortize domestic R&E over 60 or 120 months.
- Businesses with average annual gross receipts ≤ $31 million for the first taxable year starting after December31, 2024, may elect retroactive application of 174A to tax years beginning after December 31, 2021, by filing amended returns.
- If retroactive election is not chosen, small businesses may instead apply a two‑year or one‑year “catch‑up deduction” for unamortized domestic R&E costs in taxable years beginning after December31, 2024.
How can you plan ahead?
- Restoring immediate expensing offers a major cash‑flow advantage, especially for companies that invest heavily in domestic innovation.
- Tech-heavy firms, especially software developers, stand to benefit the most - software development costs are explicitly treated as qualifying R&D under §
- Weigh the benefit of accelerating deductions now versus keeping costs on the balance sheet for future tax planning flexibility.
- Discuss rules regarding changes in accounting methods with our team - elections under § 174A may require specific filings to implement.
If you have any questions about the opportunities listed above, or if you would like to schedule an appointment to understand the impact of these changes on your situation, please do not hesitate to contact our team. Appointments can be scheduled online by visiting our homepage at www.ongandcompany.com.