Unlock Tax Savings with the Return of Immediate R&E Deductions

If your business conducts research or product development, a significant tax law change could open up new tax-saving opportunities. The 2025 tax legislation, commonly known as the One Big Beautiful Bill Act (OBBBA), reinstated the ability to immediately deduct domestic research and experimental (R&E) expenses.

This change reverses a key provision of the Tax Cuts and Jobs Act (TCJA), which required businesses to capitalize and amortize domestic R&E expenses over five years and foreign R&E expenses over 15 years. As a result, businesses now have additional tax-planning options for their 2025 tax returns and for 2026.

What the Change Means for Your 2025 Filing

Beginning with eligible 2025 expenses, businesses can once again deduct U.S.-based R&E costs in full in the year they are incurred. This can significantly reduce taxable income and improve cash flow.

The law also provides flexibility for prior-year R&E expenses. Businesses may be able to accelerate deductions that previously would have been spread over multiple years.

Strategies to Maximize R&E Tax Benefits

Businesses should consider the following when evaluating R&E expenditures:

1. Amend returns for prior years
   Small businesses—generally those with average annual gross receipts of $31 million or less over the past three years—may be able to apply the rule retroactively. If eligible, you can file amended returns for 2022, 2023, and/or 2024 to claim immediate deductions for domestic R&E expenses that were previously amortized, potentially resulting in a tax refund. Amended returns must be filed by July 4, 2026.
   
2. Accelerate remaining deductions
   Businesses of any size that capitalized and began amortizing R&E expenses in 2022, 2023, and/or 2024 can accelerate the remaining unamortized balance. You can deduct it entirely on your 2025 return or split it ratably between your 2025 and 2026 returns, rather than continuing amortization over the original five-year period.
   
3. Bring research activities back onshore
   The immediate deduction makes domestic research activities more attractive from a tax perspective. While U.S.-based R&E already benefited from shorter amortization periods, the difference between an immediate deduction and a 15-year amortization schedule for foreign research further strengthens the incentive to locate R&E activities in the United States.
   
4. Consider the research credit
   A tax deduction reduces taxable income, while a tax credit reduces your tax bill dollar-for-dollar and is generally more valuable. You may be eligible for the credit for “increasing research activities,” but fewer types of expenses qualify for the credit than for the R&E deduction. While you can benefit from both, you cannot receive a double tax benefit for the same costs.

Seek Guidance

The return of the immediate deduction for R&E expenses creates meaningful planning opportunities for businesses. Contact our office for guidance on how this change applies to your situation. Erwin, Fountain & Jackson, P.A. — Jacksonville CPA Firm