Posted by Robert Bryant, Esq., CPA on 06.06.25

For years, American innovation has faced a quiet, but formidable adversary: Section 174 of the Internal Revenue Code. Under its recent interpretation, small and mid-sized businesses have been forced to amortize research and development (R&D) costs over a five-year period, rather than deducting them in the year they are incurred. This accounting change, enacted in the Tax Cuts and Jobs Act of 2017 and implemented starting in 2022, has made claiming the R&D tax credit far less attractive and feasible for many companies, especially startups and growth-stage businesses. Now, help may finally be on the horizon.

For years, American innovation has faced a quiet, but formidable adversary: Section 174 of the Internal Revenue Code. Under its recent interpretation, small and mid-sized businesses have been forced to amortize research and development (R&D) costs over a five-year period, rather than deducting them in the year they are incurred. This accounting change, enacted in the Tax Cuts and Jobs Act of 2017 and implemented starting in 2022, has made claiming the R&D tax credit far less attractive and feasible for many companies, especially startups and growth-stage businesses. Now, help may finally be on the horizon.

A newly proposed piece of legislation popularly dubbed the "Big Beautiful Bill” is currently making its way through the U.S. Senate. The white house has targeted July 4th 2025, as the deadline for the massive bill to pass both houses and congress If passed in its current form, this bill would roll back the amortization requirement, restoring full expensing of R&D costs. That means for businesses, the economy, and America’s global competitiveness will be on the rise.

What Would Change?

If the Big Beautiful Bill passes as introduced:

• Immediate Expensing Returns - Companies would once again be allowed to deduct the entirety of their R&D costs in the year those expenses are incurred, instead of being forced to spread deductions over five years.

• Section 174 Restored to Pre-2022 Rules - This effectively reinstates the pre-TCJA (Tax Cuts and Jobs Act) treatment of R&D expenditures, aligning better with how businesses actually invest in innovation.

• Greater Accessibility to R&D Tax Credit - More small and mid-sized companies would be able to fully utilize the R&D tax credit, which many have been abandoned under the burdens of amortization.

Why This Matters for Small and Mid-Sized Companies

Since 2022, the five-year amortization rule has immensely impacted smaller firms that lack the cash reserves or sophisticated accounting resources of large corporations. Many simply stopped claiming the R&D credit altogether, even when they qualified.

If the bill passes:

• Immediate Cash Flow Relief: Restoring full expensing would significantly ease cash flow burdens, making it easier for small firms to reinvest in product development, new technologies, and hiring.

• Increased R&D Investment: With a better return on investment through the tax code, more businesses may scale up R&D efforts, reviving long-term innovation pipelines.

• Startup Growth and Survival: Startups, especially in biotech, software, and engineering, could avoid bankruptcy or layoffs that stem from unfavorable tax treatment of essential R&D spending.

Economic and Innovation Impact

1. More Competitive Global Standing: Other major economies already offer generous R&D incentives. By restoring immediate expensing, the U.S. regains a crucial edge in attracting and retaining innovation-driven businesses.

2. Boost to High-Tech and Manufacturing Sectors: Industries that depend heavily on research semiconductors, pharmaceuticals, clean tech, AI stand to benefit significantly, potentially increasing domestic production and employment across the U.S.

3. Job Creation: As smaller companies expand R&D budgets, engineering, programming, and scientific roles are likely to see increased demand, creating new, high-paying jobs across the country.

What Should Businesses Do Now?

Stay Engaged & Prepare:

• Talk to your CPA or tax advisor about how this legislation could affect your 2025 and beyond tax planning.

• If you previously paused your R&D credit claims, consider how the return of immediate expensing could change your strategy.

• Keep an eye on updates from the Senate as this bill may still undergo amendments before final passage.

The Bottom Line

If the Big Beautiful Bill becomes law, it will mark a significant victory for American innovation, particularly among the businesses that fuel job growth and disruptive progress. By ending the unpopular R&D amortization requirement, the bill would unlock billions in capital for experimentation, invention, and entrepreneurship. It’s more than a tax change - it’s a statement that America is ready to bet big on its innovators again.

Our tax experts at Tax Point Advisors will continue to monitor the progress of this bill and report on the potential benefits to come. If you have any questions regarding this new legislation or would like to begin your R&D claim, you can schedule a free consultation with our team.

Request a free assessment to determine qualifying R&D tax credit eligibility.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.