R&D Tax Relief Is Back: What the New Legislation Means for Startups

It’s official - “The Big Beautiful Bill” has been signed! One of the most important changes in this legislation directly impacts many startups and growing businesses: a major shift in how R&D expenses are treated for tax purposes.

What Changed?

Between 2022 and 2024, companies were required to capitalize and amortize research and development (R&D) expenses over five years for U.S.-based costs and 15 years for foreign expenses. This was a tough pill to swallow for innovation-driven businesses, especially startups operating on tight cash flow.

Thankfully, that’s now changed.

Starting in tax year 2025, domestic R&D expenses will once again be fully deductible in the year they’re incurred. Better yet, these expenses will also qualify for inclusion in the R&D tax credit—restoring a key incentive for innovation and growth.

Foreign R&D expenses, however, must still be capitalized and amortized over 15 years.

What Does This Mean for You?

For startups and small businesses (gross receipts under $31 million): You’re allowed to amend your 2022–2024 tax returns to deduct previously capitalized R&D expenses. But don’t wait too long—these amended returns must be filed by July 4, 2026.

For larger businesses (gross receipts over $31 million): Any remaining capitalized domestic R&D expenses can now be fully written off in 2025.

One Size Doesn’t Fit All

As with all things tax-related, the devil is in the details. There are exceptions, timing considerations, and business-specific nuances that need to be carefully modeled out. We strongly recommend speaking with a qualified tax advisor to understand how this change impacts your business.

Need a referral? We work closely with two excellent tax advisory groups and would be happy to introduce you.