New Rules Could Boost Your R&E Tax Savings in 2025

A major tax change is here for businesses with research and experimental (R&E) expenses. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) reinstated the immediate deduction for U.S.-based R&E expenses. This change reverses rules under the Tax Cuts and Jobs Act (TCJA), which forced businesses to capitalize and amortize these costs over five years (15 years for research performed outside the United States).

Making the Most of R&E Tax-Saving Opportunities

The ability to deduct domestic R&E expenses immediately is available for 2025 and beyond. This shift can significantly reduce taxable income, but businesses—especially small businesses—should also consider how to maximize tax savings for prior years.

Here are four key strategies:

1. Apply the Changes Retroactively

If you qualify as a small business (average annual gross receipts of $31 million or less over the last three years), you may have more flexibility than you think.

• Amended Returns: You can file amended returns for 2022, 2023, and/or 2024 to claim immediate R&E expense deductions and potentially receive refunds. Amended returns must be filed by July 4, 2026.
• Small Business Election for 2024: If you haven’t yet filed your 2024 tax return—or you filed for an extension—you may be able to elect to expense R&E costs immediately on your original 2024 return rather than filing an amendment later. This can accelerate your tax benefit and cash flow without waiting for refunds. Talk to your CPA before filing to make sure you take advantage of this option.

2. Accelerate Remaining Deductions

Regardless of size, if your business began amortizing R&E costs in 2022, 2023, or 2024, you can deduct the remaining balance on your 2025 return (or split it between 2025 and 2026). This eliminates the need to spread deductions across the original five-year period.

3. Relocate Research Activities

With current-year deductions now available, domestic R&E activity is significantly more valuable from a tax perspective than foreign research, which is still subject to 15-year amortization. Relocating foreign research efforts to the U.S. could improve both your tax position and your ability to innovate closer to home.

4. Maximize the Research Credit

Remember, deductions and credits are not the same. A deduction lowers taxable income, while a credit directly reduces the tax you owe dollar-for-dollar. The federal credit for increasing research activities can provide significant savings, though the qualifying expenses are narrower than those for the deduction. Importantly, you can’t claim both the credit and deduction for the same expense.

Understanding Your Options

With OBBBA’s changes, the R&E landscape looks far more favorable for businesses in 2025 and beyond—but the planning opportunities for 2024 are time-sensitive. If you’re a small business and still preparing your 2024 return under extension, be sure to evaluate whether electing immediate expensing now is the best move.

Your CPA can help you:

• Determine whether you qualify as a small business under the rules,
• Decide between amending prior returns or electing to expense in 2024,
• Structure your 2025 strategy to maximize deductions and credits.

If you have questions about how these rules affect your business, leave a comment below or contact me directly. I’m happy to help you navigate the options and uncover the best path for your situation.