R & D Tax Relief Restored: What the OBBB Means for Your Business

Changing how Research & Development (R&D) Expenses are treated for businesses was an important issue in the One Big Beautiful Bill (OBBB). Since 2022 domestic R&D expenses were amortized over 5 years and foreign R&D expenses were amortized over 15 years. The OBBB made permanent the immediate expenses of domestic R&D starting in 2025. This is automatic and no special elections are required. This is great news for firms with large amounts of R&D cost, as they now get an immediate deduction instead of spreading the deduction over multiple tax years. The treatment of foreign R&D expenses remains the same, amortizable over 15 years.

The bill did not stop there. For “small business taxpayers”, which the IRS considers to be a business with average annual gross receipts of less than $31 million for the past 3 years, the bill allows for the retroactive expensing of the R&D expenses that were amortized for tax years 2022-2024. It is believed that these additional expenses will be able to be claimed by either amending the 2022-2024 returns, or by filing a change of accounting method, Form 3115, with the 2025 returns. We are expecting more guidance from the IRS about this process.

The bill also allows for all Taxpayers to elect to accelerate the remaining deductions for the R&D expenses that were capitalized from 2022-2024 over a one- or two-year period, starting in 2025. This includes large business taxpayers (taxpayers with gross receipts greater than $31 million). IRS guidance about how to make this election and what tax years the election can be made will need to be issued. As always, GranthamPoole is here to help you navigate these changes and ensure you maximize the benefits available to your business.