When President Trump signed the One Big Beautiful Bill (OBBBA) into law on July 4, 2025, it marked a major shift in U.S. tax policy for businesses investing in research and development. While much of the media focused on other provisions, this legislation introduced some of the most significant updates to R&D tax credits in years.
You may be wondering:
How does the One Big Beautiful Bill Act (OBBBA) change the R&D tax credit rules?
The OBBBA expands eligibility, simplifies compliance, and increases potential savings for companies of all sizes. It also makes it easier for businesses to claim credits for prior years, helping them recover past R&D investments more quickly.
This article explains the changes introduced by the Big Beautiful Bill, how they impact R&D tax credits, and what business owners can do to maximize their benefits.
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Before the Big Beautiful Bill
Until recently, businesses faced strict rules on deducting research and development costs. Since 2022, domestic R&D expenses have had to be capitalized and spread out over five years, while foreign R&D costs have been amortized over fifteen years. This slowed the availability of valuable tax deductions, making it harder for startups and small businesses to improve cash flow and plan strategically.
Although the R&D tax credit remained available, it often wasn’t enough to offset the delayed deductions, especially for companies that rely on innovation to stay competitive. These rules created added pressure for entrepreneurs and financial teams trying to optimize tax savings.
What the Big Beautiful Bill Changes for R&D
The OBBBA introduces some of the most impactful updates to research and development tax credits in recent years. These changes are designed to make innovation more affordable, reduce tax burdens, and provide faster access to refunds for qualifying expenses.
1. Immediate Expensing Returns for Domestic R&D
The Big Beautiful Bill restores the ability for businesses to immediately deduct domestic research and development expenses in the year they are incurred. This change is especially valuable for startups and mid-sized companies investing heavily in innovation. By eliminating the five-year amortization requirement, businesses can reduce tax liability sooner and free up cash flow to reinvest in growth.
2. Retroactive Relief for 2022–2024 Expenses
The legislation allows companies to retroactively deduct R&D costs from 2022, 2023, and 2024. This means you can amend past tax returns and recover cash for innovation investments made during that period. For CFOs and controllers, this retroactive relief creates an opportunity to improve financial strategy while maximizing R&D tax credit savings.
3. Special Breaks for Small Businesses (Gross Receipts Test)
Let's talk about the R&D tax credit & small business. Under the gross receipts test, qualifying businesses may see higher refundable credits and simpler compliance requirements. This update is designed to encourage entrepreneurs and early-stage founders to continue developing new products and services without being burdened by complex filing rules.
4. Partial Relief and Catch-Up Deductions for Larger Companies
For larger corporations, the law introduces catch-up deductions that allow immediate expensing of previously capitalized costs. Although foreign R&D expenses must still be amortized over fifteen years, domestic costs now receive favorable treatment, aligning tax incentives with the push to keep research activities in the United States.
How a Small Business Could Benefit from the Big Beautiful Bill
Let’s say a growing tech startup invested $500,000 in research and development in 2024.
Under the old rules, most of those costs would have been trapped in a five-year amortization schedule. With OBBBA, the company can now fully expense eligible R&D costs in the same year, unlocking significant tax savings and cash flow.
Deduction Opportunity:
- Deducted originally (10%): $50,000
- Trapped in amortization: $450,000
- Potential refund at a 21% tax rate: ~$94,500
And this is just for one year. If the business had similar expenses in 2022 and 2023, they could amend prior returns and claim even more cash back for past innovation investments.
Plus the R&D Tax Credit:
- 9% credit on $500,000 in qualified expenses = ~$45,000
- This credit is separate from the deduction and available annually
Total potential benefit: ~$139,500 or more per year, depending on R&D spending history.
The Startup Advantage: Payroll Tax Refunds
Pre-revenue businesses may also apply their R&D credits against payroll taxes, creating a source of quarterly refunds even without income tax liability.
To qualify, a startup must:
- Have less than $5 million in annual gross receipts
- Be within five years of earning revenue
This means early-stage companies can get cash back to reinvest in product development, hiring, or growth, a valuable source of non-dilutive capital.
What’s Next for You?
Key Deadlines and Filing Considerations (July 4, 2026)
- Retroactive relief window: Eligible small businesses have until July 4, 2026, to file amended returns for 2022, 2023, and 2024 R&D expenses.
- Document everything: Keep clear records of all R&D investments, payroll costs, and supporting documentation to simplify future claims.
- Stay updated: IRS guidance and state-level R&D rules may evolve, so keep an eye out for clarifications.
How to Maximize R&D Tax Credits in 2025 and Beyond
- Expense domestic R&D in the same year: Take advantage of the immediate expensing provision to reduce tax liability.
- Plan ahead for growth: If you’re scaling, strategize R&D investments early to make full use of credits.
- Coordinate with other credits: Pair R&D credits with other business tax incentives for additional savings.
When to Talk to a CPA or Tax Advisor
- If you’re unsure whether your expenses qualify or need help amending past returns
- When navigating gross receipts thresholds or foreign R&D amortization rules
- If you want a proactive tax strategy to improve cash flow and reinvest in innovation
FAQs on the Big Beautiful Bill and R&D Tax Credits
Below are concise answers to the most common questions business owners, CFOs, and startup founders ask about the Big Beautiful Bill (OBBBA) and R&D tax credits.
What does the Big Beautiful Bill mean for small business R&D tax credits?
The bill restores immediate expensing of domestic R&D costs, allowing businesses to deduct the full cost of qualified research in the same year rather than spreading it over 5 years. This provides faster access to tax savings and improved cash flow.
Can small businesses retroactively deduct R&D expenses from 2022, 2023, and 2024?
Yes, if your business meets the $31 million average gross receipts test, you can file amended tax returns to claim deductions for eligible R&D expenses from those years and potentially receive refunds.
Am I eligible to amend past returns for R&D deductions as a small business owner?
Most businesses with less than $31 million in gross receipts over the prior three years qualify for this relief. If you exceed that threshold, you may still claim catch-up deductions for previously capitalized costs in 2025 or 2026.
How does the new catch-up deduction for R&D work in 2025?
Larger businesses that don’t qualify for retroactive relief can deduct their remaining unamortized R&D costs in 2025 or spread them across 2025–2026. This helps offset taxes sooner without filing amended returns.
How much could small businesses save by expensing R&D immediately instead of amortizing?
Savings vary by company size, tax rate, and R&D spend, but immediate expensing can mean tens or hundreds of thousands of dollars back each year. Pairing deductions with the R&D tax credit amplifies savings, making innovation investments far more cost-effective.
Conclusion
OBBBA has created a powerful opportunity for businesses of all sizes to reduce their tax burden and reinvest in innovation. With immediate expensing now restored, retroactive deductions available for qualifying companies, and catch-up deductions for larger firms, the timing has never been better to take a closer look at your research and development spending.
At CMP, we offer specialized R&D tax credit services to help startups, small businesses, and mid-sized companies navigate these changes with confidence. From amending past returns to building a proactive R&D tax strategy for 2025 and beyond, our team ensures you capture every credit and deduction you’re entitled to.
If you’re ready to see how much your business could save, connect with our team and let us help you turn these new tax provisions into real growth opportunities.
