The One Big Beautiful Bill Act (OBBBA) restored immediate expensing for domestic R&D beginning in 2025, creating a major tax planning opportunity for biotech and life sciences companies. By pairing Section 174A expensing with the R&D Tax Credit, startups and growth-stage companies can unlock both immediate cash savings and long-term strategic benefits. Below are the four key OBBBA tax rules biotech CFOs must know.
1. Capitalization of R&D is no longer required
From 2022 until OBBBA, all companies engaged in R&D were forced to amortize those costs over 5 years. For R&D intensive companies, losing the ability to immediately deduct these costs often turned losses into phantom profits, requiring very real tax payments. With OBBBA, his is no longer required.
2. R&D Expensing is retroactive for Small Biotech Businesses
Biotech startups under $31m in revenues can go back and amend tax returns where R&D was previously amortized to deduct these costs. For companies that paid taxes in these years, this can unlock refunds.
3. R&D Tax Credits: Immediate Benefit
One of the ironies of the biotech space is that the most R&D-intensive years are often the biggest net operating loss years. This would lead one to think that no taxable income means no income tax means no need for tax credits. This is where the R&D Credit becomes very powerful.
Startup companies with <$5m in revenue and <5 years of revenue can use R&D Credits to offset payroll taxes.
This is huge for biotech companies who often have very high payroll costs. Every business must pay out 7.62% in taxes for every dollar of salary.
For example, ATS worked with a regenerative therapeutics company that had $1.4M in payroll costs. Their R&D Credit ATS helped claim generated $205K in savings, offsetting $106K of payroll taxes. With a monthly burn rate of around $200k, this extended their runway by half a month.
4. R&D Tax Credits: Future Benefit
As mentioned all unused R&D Tax Credits can be carried forward for 20 years and will have future benefit. For startups, this is important as the credit is a deferred tax asset that can become useful in multiple ways:
- R&D Credits are more liquid and valued higher than NOLs in a transaction
- R&D Credits can increase the net asset value of a business
The bottom line, unused credits can be seen as an asset of the company just like IP and help it command a higher purchase price.
The OBBBA has fundamentally reshaped how biotech and life sciences companies can plan their R&D tax strategy. With immediate expensing under Section 174A and the powerful cash-flow benefits of the R&D Tax Credit, early-stage companies now have tools to extend runway, unlock refunds, and build long-term enterprise value.
The key is accurate documentation and proactive planning, identifying which R&D costs qualify, modeling both deduction and credit benefits, and filing elections properly. Done right, these new rules are not just about tax compliance, but about securing more capital to fuel scientific innovation.
If you want to explore how OBBBA impacts your biotech company’s tax strategy, contact ATS today or use our Biotech R&D Credit Calculator to see how much additional runway you can unlock.
