Congress passes tax bill to permanently restore R&D expensing and allow amendments for prior years

Congress Passes Major Business Tax Reform Law

Congress has passed new legislation as part of the “One Big Beautiful Bill Act” (OBBBA) that updates the U.S. tax code. This new law makes significant changes to key business deductions. It primarily impacts how businesses deduct costs for research and development (R&D) and new equipment.

The law reverses tax policies that began in 2022. Until now, tax rules required businesses to capitalize their domestic R&D costs and spread the deductions over a five-year period. The new law permanently removes this requirement and makes other important changes for business tax planning.

Key Provisions of the New Law

This legislation includes several critical changes that will affect how companies calculate their taxable income. Here are the most important provisions that are now law:

• Immediate Expensing for Domestic R&D is Restored: The law permanently repeals the R&D amortization rule under IRC Section 174. Businesses can now deduct 100% of their domestic research expenses in the year they occur. This change is effective for taxable years beginning after December 31, 2024.
• Full Bonus Depreciation is Reinstated: The law reinstates 100% bonus depreciation. This allows businesses to write off the full cost of qualified property, like machinery and equipment, in the first year of service instead of depreciating the assets over time.
• Transition Rules for Past R&D Costs are in Effect: The law provides transition relief for R&D expenses that businesses capitalized from 2022 to 2024. Taxpayers can now deduct the remaining unamortized balances over one or two years, which is much faster than the original five-year schedule.
• Foreign R&D Treatment Remains Unchanged: The legislation did not change the tax rules for R&D conducted overseas. Businesses must continue to amortize these costs over a 15-year period.

How the New Law Impacts Business Operations

These tax code adjustments directly affect corporate finance and strategy. The ability to immediately deduct R&D and equipment costs will improve cash flow. This allows companies to reinvest more money into their operations and accelerate new projects.

As a result of this law, businesses must reassess their tax strategies. This is especially true for decisions about the timing of major investments and how they classify expenses.

Small Businesses (Average Gross Receipts ≤ $31M)

• Option to file amended returns to fully expense R&E costs for 2022 to 2024, if your business’s average gross receipts for 2022, 2023, and 2024 is $31 million or less.
• Option to file a superseded return to fully expense R&D costs for 2024 before your extended filing deadline (click here for more details)
• Amended returns must be submitted within one year of enactment – by July 4, 2026.
• Alternatively, small businesses may elect to take a catch-up deduction starting in 2025 (see below).

All Other Taxpayers (Including Large Businesses)

• May elect to accelerate the deduction of any remaining unamortized domestic R&E costs from 2022–2024.
• This is done via a change in accounting method using Form 3115, filed with the 2025 or 2026 return.
• Taxpayers can choose to:
• Deduct the full remaining amount in 2025, or
• Spread the deduction evenly across 2025 and 2026.

Important Reminders

• These provisions apply only to domestic R&E expenditures.
• Foreign R&E costs remain subject to the existing 15-year amortization rule under §174(d).
• The repeal of amortization is permanent, not subject to sunset provisions.

The Treasury and the IRS will provide further guidance on implementing these new rules. We will continue to monitor their announcements and share important updates. Please reach out to your local Swanson Reed director to further discuss your options to expense your R&E costs, including preparing amended tax returns, filing Form 3115, or modeling the cash flow impact of the acceleration options. 

R&D Tax Credit Preparation Services

Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed provides state and federal R&D tax credit preparation and audit services to all 50 states.

If you have any questions or need further assistance, please call or email our CEO, Damian Smyth on (800) 986-4725.
Feel free to book a quick teleconference with one of our national R&D tax credit specialists at a time that is convenient for you.

R&D Tax Credit Audit Advisory Services

creditARMOR is a sophisticated R&D tax credit insurance and AI-driven risk management platform. It mitigates audit exposure by covering defense expenses, including CPA, tax attorney, and specialist consultant fees—delivering robust, compliant support for R&D credit claims.  Click here for more information about R&D tax credit management and implementation.

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Swanson Reed offers R&D tax credit preparation and audit services at our hourly rates of between $195 – $395 per hour.  We are also able offer fixed fees and success fees in special circumstances.  Learn more at https://www.swansonreed.com/about-us/research-tax-credit-consulting/our-fees/