The following is a guest post from Todd Sutherland, partner at UHY. Opinions are the author’s own.
The recently enacted federal tax legislation — the One Big Beautiful Bill Act — introduces significant changes to the treatment of research and development expenditures. After years of uncertainty created by the 2017 Tax Cuts and Jobs Act, finance leaders finally have clarity and, in many cases, the opportunity for significant relief.
The law restores immediate expensing for domestic R&D costs, creates flexibility for handling unamortized balances and provides retroactive relief for small businesses. Taken together, the changes offer not just compliance simplicity but also new levers for cash flow management, tax strategy and long-term planning.
Immediate expensing restored
For tax years beginning after Dec. 31, 2024, companies may once again fully expense domestic R&D costs in the year incurred.
This reverses the TCJA’s requirement that businesses spread deductions over five years for domestic R&D and 15 years for foreign R&D. That mismatch between outlays and deductions created a drag on liquidity, particularly in industries with heavy upfront research investment.
By restoring current-year expensing, the new law realigns tax treatment with the reality of how innovation is funded. Business owners and finance teams can expect improved cash flow timing, less reliance on external financing, and more flexibility to reinvest in growth. For organizations balancing high labor costs, capital expenditures and digital transformation initiatives, the change may meaningfully shift capital allocation decisions.
New options for unamortized balances
For companies that have already accumulated unamortized domestic R&D costs under the old rules, the law provides a choice beginning in 2025:
- Deduct the entire remaining balance in 2025, or
- Spread the deductions evenly across 2025 and 2026.
The decision is not merely an accounting exercise. For businesses, it requires careful tax forecasting and scenario modeling.
- Companies projecting unusually strong taxable income in 2025 may benefit from a one-time deduction.
- Businesses that value smoother earnings management may prefer spreading deductions.
- Multinational entities should also consider the interplay with foreign tax credit limitations, transfer pricing and global minimum tax rules.
This flexibility allows finance leaders to align R&D tax treatment with broader business objectives, whether that means minimizing volatility, reducing effective tax rates or strengthening balance sheet optics.
Retroactive relief for small businesses
Perhaps the most intriguing aspect of the changes is retroactive relief for businesses meeting the “small business gross receipts test,” defined as average annual receipts of $31 million or less in the three years prior to 2025.
These businesses can amend returns for 2022, 2023 and 2024 to immediately deduct R&D costs that had previously been amortized. Effectively, the TCJA’s five-year rule disappears for them.
But there’s a limited window to utilize this component: companies have only one year from enactment to file amended returns. For venture-backed startups or fast-scaling companies, this relief could translate into several million dollars of liquidity, cash that can be redeployed into hiring, technology investment or extending runway.
For small to mid-sized businesses, this may be one of the most consequential tax planning opportunities of recent history. It is important to note that the AICPA has requested additional guidance from the IRS and Treasury on specific details pertaining to the retroactive claims.
Strategic considerations for CFOs and tax executives
While the law simplifies compliance, its bigger story is strategic. Leadership should work with their CFO to evaluate the new rules through several lenses:
Cash flow optimization. Immediate expensing allows finance teams to recover cash faster, improving liquidity in a higher-rate environment where external financing is expensive. Companies may be able to self-fund expansions or delay equity raises.
Tax rate management. The choice between immediate deduction and spreading should be modeled against expected profitability and possible tax rate changes. For example, if federal rates increase, deferring deductions could generate greater value.
Coordinating new opportunities with current R&D credits. The R&D tax credit remains fully available. Since deductions and credits interact, CFOs and tax executives should ensure they are capturing the full range of qualifying activities, .such as software development, process improvements and prototyping — not just traditional lab research. Proper coordination can unlock a “double benefit” without running afoul of IRS rules.
Investor relations and earnings visibility. Public-company CFOs and tax executives must also consider how the deduction choices affect reported earnings. A one-time deduction in 2025 could reduce tax expense but introduce earnings volatility. Consistent deductions over two years may better support predictable results, which analysts often reward.
The bottom line
The One Big Beautiful Bill Act transforms how businesses treat R&D costs. By restoring immediate expensing, creating flexibility for unamortized balances and offering small businesses retroactive relief, the law not only simplifies compliance but also strengthens the strategic toolkit.
In an environment where innovation is a competitive necessity and capital is costly, these reforms provide finance leaders with a timely opportunity to enhance liquidity, reduce tax burdens and align tax policy with business growth.
For CFOs and tax executives, the mandate is clear: act quickly, plan strategically and turn tax reform into a catalyst for innovation
