Tax years 2022 and Onward
Per the One Big Beautiful Bill, all U.S. companies can immediately expense domestic R&D costs, starting in tax years beginning January 1, 2025, and onward. Company size and gross receipts levels are irrelevant in this context. Companies can, however, choose to continue to capitalize domestic R&D costs and amortize them over a 5-year period.
For companies who capitalized R&D costs in tax years 2022 – 2024, they can also accelerate all remaining amortization expenses. There are two options in this regard:
- Accelerate 100% in 2025
- or Split acceleration 50%/50% between 2025 and 2026.
Foreign-based research costs follow different rules, they must still be capitalized. Companies must amortize them over 15 years. This requirement continues even in tax years 2025 and onward.
R&D Expensing Rules: Guidance for Tax Years 2022-2024
The IRS released Rev. Proc. 2025-28 on August 28th, to elaborate on the points of the OBBB. This guidance clarified options for companies filing or amending returns for 2022-2024.
Who Qualifies as an Eligible Small Business?
Only ‘eligible small business taxpayers‘ can immediately deduct domestic R&D costs for these years. These companies must pass the gross receipts test from code section 1.448-2(c). The requirement: average annual gross receipts of $25 million or less for the three prior taxable years.
Post-inflation adjustment changes this amount. For tax years 2022-2024, the threshold is approximately $30 million and for tax years beginning in 2025, it rises to $31 million.
Options for Eligible Small Businesses for tax years 2022 – 2024
Rev. Proc. 2025-28 confirmed several pathways regarding treatment of R&D costs in these years. Original-filed 2024 income tax returns can include full expensing of domestic R&D costs, including extended filers.
Companies can amend all 2022-2024 tax returns to fully expense R&D costs. One critical requirement exists: treatment must be consistent across all three tax years.
Required Documentation:
If a company chooses immediate expensing of R&D costs on tax year 2024’s filing or amendment, it must include a statement. This applies to both previous tax years’ amendments as well.
The statement must be titled: “FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28;” and must include other basic information as described on page 22 of Rev. Proc. 2025-28.
Decision Points for Companies That Capitalized R&D
Companies that capitalized R&D on past returns face a choice. They can amend all three years to ‘un-capitalize’ and fully deduct R&D costs, or they can start fresh in tax year 2025.
The latter option offers accelerated amortization. Companies can expense all remaining capitalized R&D amounts faster, or choose to maintain the 5-year amortization period initially established by the Tax Cuts and Jobs Act (TCJA).
Strategic R&D Expensing Rules 2025 Applications
Eligible small businesses have flexibility for tax years 2022-2024. This applies to both original and amended returns.
- Option 1: Maintain capitalization until tax year 2025.
- Option 2: File or amend returns while fully expensing domestic R&D costs. Apply this choice consistently across all three tax years.
Critical opportunity: Eligible small businesses that didn’t capitalize R&D costs or claim the R&D credit on original returns 2022-2024 can now amend. They can claim the R&D credit and maintain full deductions.
Summary of R&D Expensing Rules 2025
All companies can immediately expense domestic R&D costs starting in tax year 2025. Foreign-based R&D costs must still be capitalized and amortized over 15 years.
It’s an exciting time for U.S. companies’ research and development efforts to be rewarded, as the R&D credit program under IRC 41 originally intended to do so!
Next Steps for Your Business
Contact Leyton now to speak with our innovation experts. We can commence your R&D credit study for all available tax years. Don’t leave valuable tax savings on the table.
