R&D Tax Strategies 2025

In July, the One Big Beautiful Bill Act (OBBBA) delivered major wins for companies investing in R&D. Since 2022, businesses had to amortize R&D costs over five years under Section 174, driving up taxes for many innovative companies. While the R&D tax credit remained valuable, the loss of immediate deductions was painful.

Now, thanks to OBBBA and IRS Rev Proc 2025-28, businesses can once again recover R&D costs and cut taxes. At ATS, we’ve been helping clients navigate these changes. Here are three R&D Tax strategies small businesses (under $31M in receipts) should consider.

1. Deduct all 2024 R&D costs and amend prior years

Small businesses can deduct all 2024 R&D expenses and amend 2022–2023 returns. Pairing this with R&D credits restores the old system: deduct costs and claim credits. Profitable companies may receive refund checks, and you’ll have six months to supersede your 2024 return if needed.

2. Deduct all amortized R&D costs in 2025/2026

Tax planning may show it’s smarter to recover R&D assets in 2025 or spread them across 2025–2026. For R&D-heavy companies, this could significantly lower net income. Careful timing of deductions and credits can minimize tax payments in high-profit years.

3. Claim R&D Tax Credits

There is now no downside in claiming R&D Tax Credits. Combined with recovering amortized R&D, credits can slash taxes, sometimes close to zero. Keep in mind:

  • R&D Deduction recovery could produce NOLs: Recovering all R&D assets in 2025 may produce an net operating loss. NOLs can be carried forward but are limited to 80% use in the next year.
  • R&D Credits can be carried forward: R&D Credits and NOLs can be used together in 2025 and 2026 to lower taxes as far as possible. Any unused credits can be carried forward for 20 years and can be used at full value to reduce future taxes.
  • Carefully planning recovery of previously amortized R&D costs with R&D credits can ensure that both are used to maximize tax reduction for a business.

Other Considerations

Tax Rates and Profit- In which years will the business pay higher taxes or have more income. If 2024 was a lower profit year but 2025 profits are projected to be large, it may make sense to use strategy #2.

Time Value of Money- Strategy #1 will provide refunds for years where the business paid outsized taxes due to the loss of deductions but there will be delays in processing. You will earn interest of about 7% while the IRS processes this, however, it may be faster to realize the benefit from OBBBA by deducting all amortized R&D in 2025.

Costs of amending tax returns- Amending takes effort. Plan for CPA fees

Bottom Line

OBBBA gives small businesses flexibility in how they recover R&D costs and claim credits. The right strategy depends on profits, timing, and long-term planning.

Want to maximize your tax savings? Contact ATS for a free R&D tax credit analysis.