New R&D Tax Credit Rules
Under the OBBB Act
Effective July 2025

Over 65 industries can qualify for the R&D Tax Credit by innovating or improving products, processes, or technologies.

OBBB R&D Tax Credit Updates Webinar Replay arrow_circle_down

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Understanding the New R&D Tax Credit Rules Under the OBBB Act (July 2025)

Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) introduced sweeping tax changes, with one of the most impactful updates focused on R&D tax treatment.
The bill reverses the 2022 requirement to amortize research and development (R&D) expenses over five years.
Now, U.S. businesses can once again fully deduct domestic R&D expenses in the year they are incurred, starting with the 2025 tax year.

Category	Before OBBB (2022–2024)	After OBBB (Effective July 2025)
Section 174 R&D Cost Treatment	Required 5-year amortization of U.S. R&D expenses	Immediate expensing of U.S. R&D expenses allowed again
Foreign R&D Expenses	Required 15-year amortization	Still amortized over 15 years (unchanged)
Cash Flow Impact	Reduced—cost recovery spread over multiple years	Improved—R&D costs reduce taxable income in same year
Startup Flexibility	No retroactive expensing allowed	Businesses under $31M revenue (avg 2022–2024) can amend 2022–2024 All taxpayers may elect to deduct remaining unamortized amounts in 2025 or ratably over 2025 and 2026
Accelerated Amortization Option	Not available	See above (included in startup flexibility row)
Administrative Burden	High—required tracking of amortization schedules	Lower—simplified with one-year expensing
R&D Tax Credit (Section 41)	Still available, calculated separately	Still available; can be claimed along with new expensing
Eligibility	Same eligibility for QREs and activities	No change in qualifying activities or QREs
IRS Compliance Risk	Higher—amortization errors common	Lower—simplified expensing supports more accurate filings
Incentive for U.S.-Based R&D	Discouraged due to delayed deductions	Strongly encouraged through immediate tax savings

Key Points Summary Changed for R&D Tax Treatment in 2025

Distance
U.S.-based R&D expenses can be immediately expensed under Section 174.
Language
Foreign R&D must still be amortized over 15 years.
Rocket_Launch
Small businesses may retroactively apply expensing rules to tax years 2022–2024.

What are the options for Prior Years (2022-2024)?

Amend Returns

Allows full year deductions in original year (Small businesses only)

Pro: Ability to generate cash refund
Con: Admin burden, additional expenses to amend returns, waiting period to receive refund

1-Year Accelerated Deduction

Deduct remaining capitalization balance in 2025

Pro: Simple, allows for large deduction in 2025
Con: No cash refund for prior years. Creates
possible NOL carry-forward (non-immediate benefit)

2-Year Accelerated Deduction

Split remaining capitalization balance over 2025 and 2026

Pro: Smooth tax planning, larger deductions in 2025 & 2026 than if amending.
Con: Delayed benefit, less cash now

TAX YEAR 2025 FILING DEADLINES

Business Type	Filing Timely	Filing on Extension
S-Corps and Partnerships	March 16, 2026	September 15, 2026
C-Corp and Sole Proprietorships	April 15, 2026	October 15, 2026

For businesses with fiscal year ends, filing deadlines are generally 3 mo. after the FYE for S-Corps and Partnerships, and 4 mo. after the FYE for C-Corps and Sole Proprietorships.

Get ahead of additional Form 6765 reporting Requirements

Form 6765 is the form used to file and claim the Credit for Increasing Research Activities on a company’s yearly income tax return. Form 6765 is broken into 4 sections for tax year 2023 and prior:
Section A – Regular Credit
Section B – Alternative Simplified Credit
Section C – Current Year Credit
Section D – Qualified Small Business Payroll Tax Election and Payroll Tax Credit

assignment
Tax Year 2024 Taxpayers must include:
🡢 The number of business components, officer wages, acquisitions/dispositions_Section E
🡢 Total qualified research expenses_Section F
fact_check
Tax Year 2025 Taxpayers must include:
🡢 Section E & Section F
🡢 Names and types of business components, information sought to be discovered, a breakdown of QREs per business component, and a breakdown of wages by level of involvement _Section G
gavel
Section G Exception
🡢 Payroll eligible Qualified Small Business
🡢 OR QREs < $1.5M and gross receipts < $50M are exempt

Leyton’s Steps for Success

Getting Started

Meet with a member of our team to receive an overview of the R&D Tax Credit and review your eligibility. Our team will collect the financial documentation needed from you.

Initial Assessment

Our team will use this information & data to estimate what credit you are eligible for and establish an optimal claim timeline. If no credit is identified, there will be no cost for you!

Comprehensive R&D Study

Our technical consultants will determine the list of qualified R&D projects according the 4-part test while our tax consultants will work with you to ensure that the Qualified Research Expenditures (QREs) are accurate.

Report Writing & Finalization

Leyton’s team of Tax and Technical experts will work together to complete the calculations and provide your deliverables, including a detailed technical report and supporting documentation.

Receive your Benefits

After filing the proper documentation with the IRS, the R&D Tax Credit will reduce your income tax liability in the current tax year and refund for the previous 3 years. Any remaining credit can be carried forward up to 20 years.

R&D Study Review

Review your R&D Study Report with our Tax and Technical experts for the next year to increase efficiencies for future claims.

What Expenses Are Eligible for the R&D Tax Credit in 2025?

If You’re Improving a Product, Process, or Technology, You’re Likely Eligible Even if You’re Not in a Traditional “Tech” Industry

Not sure if your company is eligible? Please contact our team

Employee wages directly related to R&D

Wages paid to employees performing qualified research activities (QRAs). These wages qualify if employees are engaging in, supervising, or supporting qualified research activities under Section 41(b)(2)(D). (Example below)
👨‍💻 Software Development: Salaries of software engineers designing a new cloud-based analytics platform.
👷 Manufacturing: Wages of mechanical engineers developing and testing a new production line automation system.
🧪 Biotech: Compensation for lab scientists conducting clinical trials on a new drug formulation.

Supplies used in experimental development

Only materials consumed or transformed during R&D—as non-depreciable tangible supplies—qualify.(Example below)
🛍️ Consumer Products: Prototypes and raw materials used to create and test a new eco-friendly packaging material.
✈️ Aerospace: Carbon fiber and composite materials consumed while building and testing UAV prototypes.
🥫 Food & Beverage: Ingredients and packaging materials used during formulation testing for a new shelf-stable product.

Contract research with qualified third parties

Payments to third parties conducting qualified research on the taxpayer’s behalf (where the taxpayer retains substantial rights and bears financial risk). The IRS allows 65% of these expenses to qualify.(Example below)
🏥 Medical Devices: Fees paid to a CRO to conduct FDA-required usability testing.
🔋 Automotive: Payments to an engineering firm to develop and validate a new battery management system.
🧑‍🌾 Agriculture: Third-party lab testing for developing a drought-resistant seed variant.

Cloud computing and software development tools

Costs for leasing or renting cloud computing or computer time directly used in qualified research.(Example below)
📊 Fintech: AWS/GCP cloud compute costs used to train and test AI fraud detection models.
🕹️ Gaming: GPU server costs for rendering and simulating new real-time graphics engines.
💊 Pharma: High-performance computing resources rented to model complex protein interactions.

R&D Tax Scenario Software

This company has developed software for individual organizations focused on serving community needs. They have responded to a growing need for faster, safer, and more secure ways of data sharing & collaboration.

Wages $3,637,792
Contract Research Expenses $33,602
Supplies $0
Cloud Service Providers $99,579
Total R&D Spent $3,770,973

Credit Amount

$287,334 Calculate your claim arrow_outward arrow_outward

R&D Tax Scenario Engineering

This company aims to accelerate the success of solar in leading utility-scale energy production by maximizing solar plant value with defensible and actionable reference solar data.

Wages $3,136,947
Contract Research Expenses $0
Supplies $576,520
Cloud Service Providers $0
Total R&D Spent $3,713,467

Credit Amount

$350,347 Calculate your claim arrow_outward arrow_outward

Miss Our Latest R&D Tax Credits Webinar?

OBBB Impacts, Form 6765 Updates Webinar Agenda📅:

✅Overview of OBBB’s impact on R&D expenses – retroactive (2022–2024) and future implications
✅Key updates to IRS Form 6765 for the 2025 tax year 
✅Documentation requirements: what’s needed to support an R&D claim
✅Review of qualified R&D costs and activities 
✅Summary of Leyton’s process and value-added services

Replay is Available! 👉

Q&As from Latest OBBB R&D Webinar

When do the new R&D tax credit rules under the OBBB Act take effect?
The changes take effect starting with tax year 2025, following the bill’s signing in July 2025.Amendments to retroactively deduct R&D expesnes for qualified small businesses must be completed within 1-year of the passing of the OBBB.
Can I retroactively amend returns for R&D expenses from 2022 to 2024?
Yes—if your business has under $31 million in average gross receipts (2019–2023), you may amend prior returns to expense R&D costs retroactively.
How does the OBBB Act benefit small and medium-sized businesses?
Smaller businesses can either amend past returns or apply accelerated amortization for 2022–2024, giving them flexibility in how they claim their R&D benefits.
Why was the OBBB Act necessary for R&D tax reform?
The OBBB Act reverses the TCJA tax law changes that took affect in 2022 that required amortizing R&D costs, which had discouraged innovation and strained business cash flow.
Is the R&D tax credit different from Section 174 expensing?
Yes. The R&D tax credit reduces taxes owed, while Section 174 governs how Research & Experimental expenses are deducted. The OBBB Act affects Section 174, but both incentives can be used together.
Can startups still use the R&D credit to offset payroll taxes?
Yes. Startups with less than $5 million in gross receipts can still apply the R&D credit against up to $500,000 in payroll taxes annually.
Do I need to separate R&D costs from regular business expenses?
Yes. Properly identifying and documenting qualified research expenses (QREs) is essential for both expensing under Section 174 and claiming the R&D credit.However, they do not have to be reported separately on tax filings as they would have under the TCJA rules.
How do I know if my company qualifies under the <$31M retroactive provision?
Your business qualifies if your average annual gross receipts from 2022–2024 were under $31 million, according to IRS aggregation rules.
What determines Domestic vs. International R&D? For example, money spent with an international contractor on R&D for an item that will be sold domestically?
A company looks at where the employees or contractors are located while performing qualified activities. If an employee or contractor is located within the US, it would be considered a domestic expense. A similar analysis is completed for supplies & cloud computing expenses – where are the supplies or software being used? If within the US, they would be considered domestic expenses.
For start-ups in early stages. What is the break even point of cost of filing for the R & D credit?
The R&D credit should always be a net benefit as the credit is calculated as a percentage of qualified research expenses.
Is it true that companies that are funded by the NIH/DoD/NSF, etc. won’t qualify for it for R&D tax credit?
When reviewing funded research, companies must prove they bear financial risk and retain substantial rights to the IP created. If a company is able to do this, the research should qualify so long as it meets the IRS’ 4-Part Test.
If a company hasn’t filed 2024’s tax return yet, do they need to capitalize R&D on their initial 2024 filing and then amend, or can they file 2024 with the direct expensing of R&D without needing to amend?
This is an area where further IRS guidance would be appreciated. The OBBB clearly states you are only permitted to deduct QREs for 2024 on an amended return. However, the bill does not state whether a company who did not capitalize the expenses originally can amend to claim the credit and deduct the expenses. It’s worth noting that current tax laws require research expenses be capitalizaed and amortized for 2024 and failing to do so could be scutinized by the IRS.