June 17, 2026
Businesses with research and development (R&D) activities may have new tax planning opportunities to consider. Recent tax law changes have restored immediate expensing for many domestic R&D costs, but that is only part of the story. Depending on the business, there may be multiple ways to approach R&D tax benefits, and the decisions made today could affect tax savings and cash flow for years to come. Since the credit can lead to significant savings for those with eligible R&D activities, now is the time to revisit this incentive. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Understanding the available options starts with understanding how the R&D deduction, R&D tax credit, and related tax elections work together.
Immediate expensing is back for domestic R&D. The One Big Beautiful Bill Act (OBBBA) created Section 174A and restored immediate expensing for many domestic R&D costs beginning in 2025. This means businesses can once again deduct qualifying domestic R&D expenses in the year the costs are incurred rather than capitalizing and amortizing those over time. Qualifying expenses may include employee wages, supplies, software development costs, and certain other research expenses.
The new rules apply only to domestic research activities. Foreign R&D expenditures must still be capitalized and amortized over 15 years. As a result, businesses that conduct research both inside and outside the United States may need to carefully track those costs separately.
The deduction is separate from the R&D credit. The R&D deduction under Section 174A and the federal R&D tax credit under Section 41 are two separate tax benefits. The deduction may reduce taxable income, and the credit can be used to reduce tax liability. Businesses often assume they must choose one or the other, but many taxpayers qualify for both.
Regardless, the deduction and credit should be evaluated together as part of the planning process. One reason is Section 280C, which generally prevents taxpayers from receiving both a full deduction and a full credit for the same research expenses. In other words, there’s a provision in place to prevent so-called “double-dipping.” That doesn’t mean businesses have to choose between the deduction and the credit, but it does mean there may be tradeoffs to consider.
Additional elections may affect the outcome. Immediate expensing may be the preferred approach for many businesses, but it is not the only option. Recent law changes interact with several other tax provisions, including the aforementioned Section 230C and also Section 59(e), which allows certain research expenditures to be deducted over10 years rather than immediately.
Some businesses may also need to consider accounting method changes and related IRS filings, including Form 3115. Businesses are encouraged to discuss options and implications with an advisor before making any changes to current accounting strategy.
Established Profitable Businesses — Immediate expensing may provide the greatest current-year tax benefit for established profitable businesses. If a business is generating taxable income today, deducting qualifying domestic R&D costs immediately can reduce the current tax bill and improve cash flow. For many businesses, Section 174A will be a welcome benefit this year.
Growing Businesses Expecting Higher Income — The timing of deductions may deserve a closer look for businesses expecting higher taxable income in future years. In some situations, spreading deductions across future years may result in a better overall tax result than claiming the full deduction immediately. Running the numbers under different scenarios can help businesses determine which approach to apply.
Businesses with Accumulated Losses — Immediate expensing does not always produce the greatest benefit. If a business already has tax losses from prior years, another large deduction today may not move the needle very much. A business may want to model the immediate deduction versus preserving the deduction for future years to see which scenario creates the most value.
Businesses Planning for Ownership Changes — Tax planning often changes when a business believes there will be an acquisition, sale, or other ownership change. Decisions made today on R&D deductions may affect the tax position of the business after the transaction. Businesses in this position will want to closely review options with an advisor. .
Other Considerations
Several issues may affect how businesses implement R&D tax strategy.
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Recent law changes have created new R&D planning opportunities for many businesses. However, the best approach depends on a variety of factors, with implications stretching beyond just this year. Businesses will want to work with an advisor to review options before making any decisions. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.