After weeks of debate and draft rewrites, the One Big Beautiful Bill (OBBB) was signed into law by President Trump on July 4.
This sweeping act brings big news for the tech industry on the tax front. The OBBB Act overhauls several tax rules, including a retroactive fix to Section 174 of the tax code that governs how companies deduct research and development (R&D) costs.
In short, the OBBB Act reverses a controversial 2022 change that forced businesses to spread out (amortize) their R&D deductions over several years. Now, many companies can once again expense domestic R&D costs upfront, and some can even claim back tax benefits for past years.
Below is a quick breakdown of what Section 174 is, what changed, and an explanation of how this could affect your tax bill.
What is Section 174?
Section 174 of the US tax code covers how businesses treat their R&E expenses for tax purposes. For decades, companies could fully deduct qualifying R&D costs in the year they were incurred. This immediate write-off was intended to encourage innovation by lowering the after-tax cost of R&D investment.
However, a provision in the 2017 Tax Cuts and Jobs Act (TCJA) changed the game starting in 2022. Under that change, businesses were required to capitalize and amortize their R&D costs over a specified period of years, rather than deducting them all at once.
Specifically, beginning with tax year 2022, any US-based R&D expenses had to be written off over five years (with only a portion deductible each year), and any foreign R&D expenses over 15 years. This meant a much smaller deduction in the year the R&D money was actually spent.
Many tech companies — which typically invest heavily in software development and other R&D — saw their taxable incomes jump in 2022 as a result. Section 174 went from being a routine tax benefit to a pain point that startups and big tech firms were eager to see fixed.
Immediate changes under the OBBB Act
Enter the One Big Beautiful Bill Act (2025): a sweeping tax bill that, among other things, reinstates immediate expensing for US-based R&D costs.
Starting with tax years beginning after December 31, 2024, companies can once again deduct 100% of their domestic R&D expenses in the year incurred — no more five-year amortization for US research costs.
There is a catch: this full immediate deduction only applies to domestic R&D spending. Foreign R&D expenditures still have to be amortized over 15 years under the new law, just as they were under the TCJA rule. (The logic is to incentivize research activity within the United States.)
For tech companies with significant US-based engineers and developers, the return of R&D expensing is a welcome change. It restores the pre-2022 status quo for domestic research costs, meaning lower taxable income and tax bills in the years you invest in innovation.
Retroactive relief and key dates
In addition to applying to Section 174 going forward, the OBBB also offers retroactive relief for recent years. However, the retroactive benefit comes with eligibility limits and deadlines. Here's what tech companies need to know:
Small businesses
Companies classified as "small" (those with average gross receipts of $31 million or less over the past three years) get the most relief. If your tech startup or company falls in this category, you have two main options to apply full R&D expensing to past years:
- Amend your 2022–2024 tax returns. You can retroactively claim the R&D deductions you couldn’t take under the old rule by filing amended returns for tax years 2022, 2023, and 2024. This could result in tax refunds for those years since you’ll be deducting more expenses than you originally did. There is a time limit: amendments must be made within one year of the bill’s enactment (roughly by mid-2026).
- Take a catch-up deduction on your 2025 return. If amending multiple returns sounds like too much hassle, the law allows an alternative: you can claim all the remaining undeducted R&D expenses from 2022–2024 as a one-time "catch-up" write-off in your 2025 tax year (or spread it over your 2025 and 2026 returns). This effectively accomplishes the same goal (deducting those costs fully), but is delayed until the 2025 tax filing.
Larger businesses
If your company’s average receipts exceed $31 million, you cannot go back and amend prior returns under this law. But you still get relief in the form of faster deductions. The OBBB Act lets larger companies accelerate any remaining amortization of their 2022–2024 R&D costs. In practice, this means that any R&D expenses you were previously required to spread out over five years are now essentially freed up to deduct in 2025 (or over 2025 and 2026), rather than waiting the full five years. By the end of 2026, all those previously deferred R&D costs will have been written off.
Key dates to know
- Tax years 2022–2024. Eligible small businesses (average receipts of $31 million or less) can retroactively apply full R&D expensing to these years. That means you can amend those returns or, if preferred, use the 2025 catch-up deduction to reclaim previously amortized costs.
- July 4, 2025. The BBB Act was signed into law on this date, making the Section 174 changes official. This also starts the clock on the one-year window for filing any retroactive amended returns.
- By July 2026. Deadline for small businesses to file amended 2022–2024 returns and claim refunds under the new law (one year from enactment). Miss this window, and you’d have to rely on the catch-up deduction route instead.
- Tax year 2025 and beyond. Effective immediately, the immediate expensing of domestic R&D is in effect going forward. For any R&D costs incurred from January 2025 onward, you can deduct the full amount on that year’s return, just like in the pre-2022 days. Foreign R&D remains excluded from this treatment.
Final thoughts
For R&D-intensive tech companies, the changes to Section 174 in the OBBB Act are largely good news. Reinstating immediate expensing for domestic research costs removes a significant cash flow burden and encourages ongoing investment in innovation.
If your company was affected by the 2022 amortization rule, it’s worth understanding what these new provisions mean for your financials, especially if you’re eligible to amend past returns or take advantage of accelerated deductions.