The new “One Big Beautiful Bill” (H.R.1, 119th Congress) brings major tax changes for companies that invest in research and development. After three years of costly tax complications, relief has finally arrived for innovative businesses.

Section 41 R&D tax credit stays the same, but Section 174 full expenses are back. This creates a powerful combination that boosts your net tax benefit and cash flow. For many companies, this means immediate tax relief and opportunities to recover overpaid taxes from previous years.

What Changed in Section 174

Full Expensing Returns After Three Years of Amortization

Section 174 Full Expensing is Back. Section 70302 of the One Big Beautiful Bill brings back full expensing of domestic research costs under Section 174. This reverses the 5-year amortization rule from the 2017 Tax Cuts and Jobs Act (TCJA).

Before this change, companies were forced to spread R&D expenses incurred after December 31, 2021, over five years instead of deducting them immediately. This created artificial profits on paper and higher tax bills, even for companies losing money.

Before vs After: R&D Tax Benefit Breakdown

See how the “One Big Beautiful Bill” transforms your tax savings

Example Company
$500,000 domestic R&D spending • $50,000 R&D tax credit • 21% corporate tax rate

Before: 5-Year Amortization
R&D Deduction (Year 1) $100,000
Tax Savings from Deduction $21,000
R&D Tax Credit $50,000
Total Tax Benefit $71,000

Key Issue: $400,000 in R&D costs must be spread over 5 years, creating artificial taxable income

+118% Improvement!
After: Full Expensing
R&D Deduction (Year 1) $500,000
Tax Savings from Deduction $105,000
R&D Tax Credit $50,000
Total Tax Benefit $155,000

Key Issue: Full $500,000 deduction in year one provides immediate cash flow relief

Why Full Expensing Matters for R&D

Your R&D Tax Benefits Just Got Much More Valuable 

Major Cash Flow Boost This isn’t just a tax code fix, it’s a cash flow boost. Here’s a simple example: 

Example: A company spends $500,000 on domestic R&D and earns a $50,000 R&D tax credit. Corporate tax rate is 21%. 

Scenario Without 174(a) Election With 174(a) Election
R&D Deduction (Year 1) $100,000 (20% amortization) $500,000 (full expensing)
Taxable Income Reduction $21,000 C$105,000
R&D Credit $50,000 $50,000
Total Tax Benefit $71,000 $155,000

The company's net tax benefit more than doubles from $71,000 to $155,000 thanks to full deduction. 

This example shows a mid-sized company, but the impact scales with your R&D spending. A startup spending $200,000 on R&D might see their tax benefit increase from $28,400 to $62,000. 

Who Benefits Most from This Change

Every Company Investing in Innovation Wins, But Some More Than Others 

Startups and Growth Companies Early-stage firms investing heavily in R&D will see the biggest impact. They can now fully deduct expenses in the year they happen rather than watching inflated taxable income drain cash during critical growth phases. Pre-revenue companies can still apply up to $500,000 of R&D credit against payroll taxes each year. 

Consider a typical software startup spending $300,000 annually on developer salaries for product development. Under the old rules, they could only deduct $60,000 in year one, creating $240,000 in artificial taxable income. Now they can deduct the full $300,000 immediately. 

Established Companies with Ongoing R&D Programs Mature businesses with consistent R&D spend will benefit from better cash flow timing and simpler compliance. Those planning for profitability or acquisition will find the R&D credit becomes a more powerful strategic tax tool. 

Companies in High-Innovation Sectors Software development, biotechnology, manufacturing, and other R&D-heavy industries will see the biggest cash flow improvements. This especially helps those with large technical staff costs, prototype development, and contract research expenses.

Impact Based on Company Size

With full expensing back in place, how and when your businesses benefit depend on size. The IRS uses a three-year average of gross receipts to determine eligibility. Companies at or below $31 million in gross receipts are treated differently than those above. 

Here's what that means in practical terms:  

Small Businesses

(Average gross receipts of $31 million or less) 

Smaller companies can do more with the new rule, including reaching back and reclaiming tax they paid over the past three years. 

Category What It Means
Amended Returns You’re allowed to go back and amend tax filings from 2022, 2023, and 2024 to apply full expensing to domestic R&D costs. This creates an opportunity to claim refunds on taxes paid under the old amortization rule. /td>
One-Time Catch-Up Deduction Instead of amending multiple years, you can elect a single catch-up deduction in the next year you file. This lets you recover those same costs without having to revisit each return individually.
Didn’t Amortize? If you skipped amortization and deducted R&D costs fully during 2022–2024, your position now aligns with the new rule. No penalties are expected, but reviewing filings with a qualified advisor is a smart move.
Action Required You must make an election to apply retroactive expensing within one year of the bill becoming law. This applies whether you’re amending prior returns or taking the one-time deduction.
Other Notes This only applies to U.S.-based research costs. Foreign R&D must still be amortized over 15 years. Also, aggregation rules apply—parent and subsidiary revenue may be grouped.

This can significantly improve your net income, retained earnings, and cash position—especially for growing companies preparing for a funding round, sale, or hiring expansion. 

Larger Businesses

(Gross receipts over $31 million) 

Larger companies don't get retroactive refund rights, but they still benefit from faster deductions moving forward. 

Category What It Means
Amended Returns You cannot amend returns to retroactively apply full expenses. Past amortized amounts must remain as filed.
Accelerated Deductions You can now accelerate unamortized expenses from 2022, 2023, and 2024. Choose to take a full deduction in 2025 or spread it evenly across 2025 and 2026. This helps align deductions with future profits.
Didn’t Amortize? If you deducted costs instead of amortizing, you may need to file a change in accounting method.
Action Required You don’t need to file an election. The rule change applies automatically starting with your 2025 tax year.
Other Notes The 15-year rule for foreign R&D costs still applies.

This shift may free up large deductions in high-profit years. The key is to review your past treatment and plan for how the new timing will affect your future liability and credit claims.

How Boast Maximizes Refunds & Compliance

Navigate Complex Tax Changes with Confidence

At Boast, we help companies maximize their R&D tax credits while ensuring full compliance with evolving rules under Sections 174 and 41. Our platform and team provide:

Get Money Back Services Our team can identify opportunities to file amended returns for 2022-2024 and assist with potential refunds or catch-up deductions from previously spread expenses. We’ve seen refunds ranging from $10,000 for smaller companies to over $500,000 for larger R&D-intensive businesses.

Optimized Credit Claims We ensure your R&D credit claims are optimized, defensible, and audit-ready, especially as new legislation creates fresh opportunities and compliance considerations.

What Actions to Take Before the Deadline

Whether you’re preparing your 2024 claim, evaluating how the changes to 174 impact your company, or seeking to recover missed deductions from past years, Boast is here to help you navigate this game-changing legislation.

The window for maximizing these benefits won’t stay open forever. Companies that act quickly to understand their options and file necessary paperwork will see the greatest impact on their cash flow and tax positions.

Schedule your free consultation today and discover how much capital you could unlock through better R&D tax strategy. Our experts will analyze your specific situation and show you exactly how the One Big Beautiful Bill can improve your bottom line.

Frequently Asked Questions

The R&D tax credit (Section 41) rewards businesses for increasing research activity in the U.S. It allows companies to offset income or payroll taxes based on eligible expenses like wages, supplies, and contract research. The credit can range from thousands to millions of dollars each year.

What expenses are eligible for the R&D tax credit? Eligible expenses fall into four main categories:

  • Wages – Salaries for employees directly involved in research, including engineers, developers, and technical leads
  • Supplies – Materials consumed during the R&D process, such as prototypes, testing components, or lab materials
  • Contract Research – Payments to third-party vendors for performing research on your behalf (typically at 65% of the cost)
  • Computer Rental/Cloud Costs – In some cases, expenses for renting servers or cloud computing used in research
    To qualify, the activities must meet IRS criteria and involve technological experimentation aimed at developing or improving a product, process, technique, software, or formula.

Review our Expense Chart below.

Section 174 covers how research and experimental expenses are treated for tax deduction purposes. While there is overlap with the R&D credit, Section 174 includes a broader set of costs and determines how those expenses are deducted (immediately or over time). 

It allows companies to deduct more in the current year, resulting in lower tax liability and more cash on hand for continued innovation and growth. 

Yes, the change is retroactive but how it applies depends on your business: 

  • For certain small businesses (those with average annual gross receipts of $31M or less), the law allows you to elect to apply full expensing back to R&D costs from after December 31, 2021, effectively making the change retroactive to the 2022 tax year. 
  • For other taxpayers, there's an option to deduct previously spread 2022–2024 R&D expenses either all at once in the first taxable year beginning after December 31, 2024, or spread evenly across the first two years beginning after that date 

This flexibility gives companies multiple ways to reclaim or accelerate deductions tied up under the old rules. 

Yes! If your company is pre-revenue or not yet profitable, you may be able to apply the R&D credit against payroll taxes (up to $500,000 each year). This is especially valuable for startups and early-stage firms focused on growth over profitability. 

Planning to be profitable or acquisition in the coming years? The R&D credit can be a powerful tax strategy tool; however, early planning is essential. At Boast, we specialize in partnering with companies and tax firms alike to ensure your business is put in the most advantageous tax position. 

Not directly. The mechanics of Section 41 R&D credit remain unchanged. However, the restored Section 174 expensing simplifies compliance and can improve your net tax position when claiming the credit, especially by avoiding spread expenses that reduce deductions and eliminating the addback that previously reduced net benefits. 

R&D Tax Credit: Eligible Expenses

Four main categories that qualify for Section 41 R&D credit

What Qualifies for R&D Credit?

Expenses must involve technological experimentation aimed at developing or improving a product, process, technique, software, or formula

~65%

Employee Wages

Salaries for employees directly involved in qualified research activities

COMMON EXAMPLES:

  • Software developers & engineers
  • Technical leads & architects
  • Research scientists
  • Product development teams
  • QA engineers (testing new functionality)
~20%

Supplies

Materials consumed during the R&D process (not equipment or land)

COMMON EXAMPLES:

  • Prototype materials & components
  • Testing equipment & lab materials
  • Raw materials for experimentation
  • Software licenses for development
  • Cloud storage for R&D projects
~10%

Contract Research

Payments to third parties for performing research on your behalf

COMMON EXAMPLES:

  • University research partnerships
  • Contract development services
  • Consulting for technical research
  • Third-party testing services
  • External lab work & analysis

Important: Typically 65% of contract costs qualify for credit

~5%

Computer Rental

Rental costs for computers and cloud services used in qualified research

COMMON EXAMPLES:

  • AWS/Azure compute for R&D
  • Specialized server rentals
  • High-performance computing costs
  • Development environment hosting
  • Machine learning training clusters

Note: Must be used exclusively for qualified research

Key Requirement

All expenses must meet the “Four-Part Test” – involving elimination of uncertainty, technological in nature, experimentation process, and intended to develop new/improved business components.