Great news for innovative businesses — the One Big Beautiful Bill Act (“OBBBA”) brings significant tax relief for companies investing in research and development. Effective for tax years beginning after December 31, 2024, eligible taxpayers may now qualify for:
Full Immediate Expensing of Domestic R&D Costs
The OBBBA permanently reinstates the 100% deduction for U.S. based domestic research and experimentation costs incurred after 2024 no longer requiring that such costs be capitalized and amortized. The OBBBA also provides that eligible small businesses – those with average annual gross receipts of $31 million or less – would be able to claim the deduction retroactively to 2022, which allows these entities the ability to amend past returns and recover cash. For entities not qualifying as an eligible small business, the bill provides for expedited expensing of previously capitalized amounts.
Immediate Expensing with the R&D Credit
With immediate expensing of R&D costs combined with the R&D tax credit, the benefits become a powerful combination to boost cash flow and reduce effective tax rates. For eligible entities and activities, the OBBBA also expands the definition of costs qualifying for the R&D credit including a broader definition of software development costs and certain types of engineering and design work. The OBBBA also allows small businesses and start ups to receive refundable credits meaning companies can receive cash returns even if they have not yet generated taxable income.
Our NCA R&D tax credit specialists are available to explore how this new law change may best benefit you. Please give us a call or send us an email if you would like to schedule a time to discuss.