If you’ve been tangled up in Section 174 capitalization headaches since 2022, here’s the update you’ve been waiting for: the One Big Beautiful Bill Act just flipped the script. For tax years beginning on or after January 1, 2025, domestic R&D costs are once again 100% deductible in the year they’re incurred.
For innovative businesses—and the CPAs guiding them—this is huge. Immediate expensing is back, cash flow stress is off the table, and there’s even an opportunity to claw back costs from the past few years.
The team here at Firestone has dug into all the details and gotten to the bottom of exactly what’s changed, who stands to gain the most, and how we’re already helping taxpayers and their CPAs turn this into serious savings.
Immediate Expensing for Domestic R&D is Back
Under the 2017 TCJA, businesses had to start capitalizing and amortizing Section 174 research costs over five years (or 15 years for foreign R&D). Instead of writing off, say, $500,000 in R&D expenses right away, they could only deduct a small fraction each year — tying up cash and slowing growth.
Now? That’s history. The new law restores the old rules: domestic R&D expenses are fully deductible in the year they’re incurred. That’s a major cash flow boost right when businesses need it most. It’s a win for manufacturers, software firms, engineering groups, and anyone else betting on steady innovation to stay ahead.
Retroactive Relief Could Mean Immediate Refunds
And there’s more. For businesses under $31 million in gross receipts, Congress carved out a special break. You can amend your 2022–2024 returns to immediately deduct those previously amortized costs, potentially unlocking significant refunds. Not eager to amend? There are also catch-up deduction options for tax years 2025 and 2026 that let you deduct those unamortized 2022-2024 R&D costs.
Larger companies aren’t left behind either — they can accelerate remaining amortized R&D amounts from 2022–2024 over the next two years, speeding up the benefit and giving cash flow a solid bump.
Foreign R&D Still Needs to Be Capitalized
It’s worth flagging that this only applies to domestic R&D. Any costs tied to research performed outside the U.S. still have to be spread out over 15 years. Bottom line: the incentive is to keep innovation at home booming and keep domestic innovation as strong as ever.
Why These Section 174 R&D Deductions Matter for Your Clients
This isn’t just another line on a tax return. It’s a fundamental shift in how businesses can plan, invest, and keep moving forward. With immediate deductions back, cash stays inside the company — not tied up in the IRS’s amortization schedule. Financials get cleaner too, with lower taxable income improving ratios and making balance sheets more attractive to banks or investors.
But most importantly? It gives business owners and CFOs the confidence to keep investing in new products, better systems, and smarter processes, without worrying that the tax benefit will take years to materialize.
And don’t forget — this sits right alongside the R&D tax credit under Section 41, which remains fully intact. Meaning your clients can deduct costs immediately and still capture those powerful dollar-for-dollar credits.
How Firestone Tax is Helping CPAs and Business Owners Get Ahead
At Firestone, we’re already deep into these new laws and updates — helping clients and their CPAs navigate the new rules and squeeze every dollar of benefit out of them.
We start by digging into your 2022–2024 costs to see whether amended returns or a catch-up deduction will put more money back in your client’s pocket. And of course, our team will handle all the heavy lifting on documentation, partnering closely with CPAs to ensure every expense is rock-solid under Section 174A. So if the IRS ever comes calling, your clients are covered.
Ready to See What This Means for You?
If your business invested heavily in R&D since 2022, or if you’re a CPA looking to make sure your clients don’t leave money on the table, now’s the time to act.
Schedule a strategy call today to see how much this new law could save you.
Firestone is here to help navigate every option—whether that’s amending past returns, structuring a catch-up deduction, or simply planning for smarter R&D investments moving forward.
