If your business invests in research and development (R&D), the One Big Beautiful Bill Act (OBBBA) has brought a welcome change — and some important elections to make by July 3, 2026.
For certain small businesses, OBBBA allows Research Expenses to be fully deducted in the year they’re incurred, reversing the five-year capitalization and amortization requirement that’s been in place since 2022. This change can free up valuable cash flow — but let’s review timing, eligibility and other considerations.
Who Benefits?
The most obvious winners are businesses that have claimed Research Expenditures expenses in the past and qualify as a “small business” which is defined as average annual gross receipts under $31 million over the past three years. The benefit isn’t just retroactive — businesses planning R&D in 2025 and beyond should also take note, as the bill does not specify an end date making this change permanent unless new legislation is passed.
Businesses which are not “eligible small businesses” are allowed to accelerate unamortized domestic R&D deductions over one or two years.
Examples of Industries with Heavy Research Expenditures
The industries below often have qualifying R&D costs:
- Software Startups – Heavy coding and product development costs, often with little revenue early on. An immediate deduction can be a lifeline for growth.
- Manufacturing Firms – Prototype design, process improvements, and testing often qualify as research expenses.
- Biotech & Life Sciences – Lab research, drug trials, and product testing.
- Engineering & Architecture Firms – Developing specialized systems or materials, especially in boutique firms likely under the $31M threshold.
- Specialty Food & Beverage Producers – New formulations, production methods, or packaging innovations — an often-overlooked source of R&D credits and deductions.
Closing Thoughts
Every business is different, but the key is to act now — OBBBA’s provisions are in effect, and the one-year window to elect this new R&D treatment closes July 4, 2026. Review your R&D activities, strengthen your documentation, and choose the strategy that works best for you. We recommend acting well before the deadline, so your CPA has time to evaluate your options, prepare any amendments, and secure the full benefit before schedules fill up.
If you think your business might benefit from these changes — or if you’re unsure — let’s talk. As tax advisors, our role is to help you navigate these opportunities and make informed decisions that align with your broader business goals.