R&D Tax Credit Fix
How the One Big Beautiful Bill Act Finally Ends the Capitalization Saga
If you’ve been sinking time and money into research and development (R&D)—whether that’s product innovation, process improvement or software development—you’ve likely been frustrated since 2021.
For three years, business owners were told, “Don’t worry, Congress will fix this before your extended deadline.” But the fix never came. And instead of deducting your U.S. R&D expenses right away, you were forced to spread them out over five years. That meant bigger tax bills and less cash in your pocket when you needed it most.
Now, relief is here. On July 4, 2025, the One Big Beautiful Bill (OBBB) was signed into law and it finally restores the ability for qualifying small businesses to fully deduct U.S.-based R&D expenses in the year they occur. Even better? You can fix prior years and unlock immediate cash flow.
What the OBBB R&D Tax Law Change Means for You
Before: R&D expenses had to be capitalized and amortized over five years.
Now: If you qualify as a small business, you can deduct them all at once in the year incurred and even go back to reclaim deductions from prior years.
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Amend Past Returns for Bigger Refunds
If your average annual gross receipts are under $31 million, you can retroactively apply the new rules to tax years starting after 2021. That means you can amend your 2022, 2023 and 2024 returns to take full deductions on your U.S. R&D expenses.
Deadline: You have until July 4, 2026 to file amended returns.
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Deduct Remaining Capitalized Costs in 2025 or 2025–2026
If you had to capitalize R&D expenses in prior years, you can:
- Deduct all remaining unclaimed amounts in 2025
- Or split the deduction evenly between 2025 and 2026
This could mean tens or hundreds of thousands in tax savings in a single year—money you can reinvest in your business now instead of waiting years to recover.
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No IRS Form 3115 Required (for Now)
Normally, changing your accounting method requires filing Form 3115. OBBBA waives that requirement for this change. Instead, you’ll just need to include a clear statement with your return or amended return describing your election.
Why This R&D Tax Credit Fix Matters
For small businesses, this isn’t just a rule change—it’s a cash flow lifeline. By unlocking deductions you should have been able to take in 2022–2024, you can:
- Free up capital for hiring, equipment or product launches
- Reduce tax liabilities and improve profitability
- Simplify recordkeeping going forward
Example:
If your company had $500,000 in qualifying R&D expenses in 2023, under the old rules you’d only deduct $100,000 per year over five years. Under the new rules, you can amend your 2023 return and deduct the full $500,000 immediately—potentially lowering your tax bill by six figures.
Action Steps for Business Owners
- Check your Eligibility
•Confirm your business meets the $31 million gross receipts test.
•Remember to combine receipts if you own multiple entities. - Choose your Strategy
•Will you amend 2022–2024 returns for immediate refunds?
•Will you deduct all remaining capitalized costs in 2025 or spread them over two years? - Work With your Tax Advisor Now
•Amending returns can take time—don’t wait until the 2026 deadline is looming. - Prepare Clear Documentation
•Include your election statement with each return.
•Keep detailed R&D expense records in case of IRS questions. - Stay Updated on IRS Guidance
•The IRS is expected to release more details, especially around documentation, so keep in touch with your advisor.
The Bottom Line
The R&D tax credit fix in the One Big Beautiful Bill is one of the most significant small business tax changes in recent years. If you’ve been waiting to recover R&D costs, now’s the time to act. The sooner you amend returns or plan your 2025 deductions, the sooner you can put that cash back to work in your business.
Don’t leave money on the table. Schedule a tax planning meeting with an Adams Brown advisor to make sure you’re getting the maximum benefit from this long-awaited change.
