One of the most impactful changes in the new tax reform bill is the permanent fix to the way businesses deduct their U.S.-based research and development (R&D) expenses.
Starting in 2025, the new Section 174A allows qualifying R&D costs to be fully deducted in the year incurred — reversing the unpopular five-year amortization rule from the 2017 Tax Cuts and Jobs Act (TCJA).
But here’s the bigger opportunity: You may be able to go back to 2022 and retroactively claim missed R&D deductions — or catch up remaining amortized balances on your 2025 return.
What Changed in the Law?
Section 174A (as enacted in the 2025 reform bill):
Allows full immediate expensing of domestic R&D and software development costs
Applies to wages, supplies, and contract research
Replaces the 5-year amortization rule (TCJA, effective 2022)
Effective for tax years beginning after Dec 31, 2024
Also allows catch-up for 2022–2024 R&D costs (see below)
Who Qualifies for Retroactive R&D Expensing?
To take advantage of this, your business must:
Have conducted qualifying R&D in the U.S.
Meet the gross receipts test under IRC §448 (generally <$29 million average over 3 years)
Have capitalized and amortized R&D under the old TCJA rules in 2022, 2023, or 2024
You now have 3 strategic options:
Amend prior returns and deduct full R&D amounts retroactively
Elect to deduct remaining amortized balance all at once in 2025
Spread remaining amortization over 2025–2026 (a 2-year catch-up)
Partnerships & S-Corps:
Since the deduction flows through to partners/shareholders, consider individual tax brackets and refund potential when deciding whether to amend or deduct in 2025.
Example: $50,000 in 2022 R&D Expenses
A SaaS startup amortized $50,000 of qualified domestic R&D in 2022.
$10,000 deducted in 2022
$10,000 deducted in 2023
$10,000 planned for 2024
Remaining $20,000 (2025–2026) still on the books
Option 1: Amend 2022 and 2023 returns → claim $40,000 more immediately + interest refund
Option 2: Elect catch-up in 2025 → deduct $20,000 on this year’s return
Option 3: Spread $20,000 across 2025–2026 ($10K each year)
Action Step
If your business did any R&D, software dev, or product design in the U.S. from 2022 onward, now is the time to re-analyze:
What did you capitalize under the old rules?
Would a 2022 or 2023 amendment produce a refund?
Would a 2025 catch-up help reduce this year’s tax burden?
We can help model the impact of each scenario and file the necessary elections or amended returns.
Need help running the numbers?
Let’s review your R&D tax strategy now — before 2025 ends.