When Can Businesses Deduct Research and Experimental (R&E) Expenditures?
Posted in Offshore Account Update on August 29, 2025 | Share
Among several tax-related provisions in the One Big Beautiful Bill Act (OBBBA) that President Trump signed into law on July 4, 2025 is a provision that permits the immediate deduction of research and experimental (R&E) expenditures. For businesses that have qualifying R&E expenditures, this provision has the potential to afford substantial short-term tax savings. However, businesses will need to be careful when taking R&E deductions as well—as doing so improperly could trigger IRS scrutiny along with additional liability for interest and penalties. Learn more from Washington D.C. business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:
Deducting R&E Expenditures Under the OBBBA in 2025 and Beyond
The OBBBA creates a new Section 174A of the Internal Revenue Code. Under new Section 174A, businesses can immediately deduct qualifying R&E expenditures for tax years beginning January 1, 2025 or later.
The word “qualifying” is key, because not all R&E expenses qualify for immediate deduction under new Section 174A. For example, the immediate deduction is only available for R&E expenses incurred within the United States. Expenses incurred outside of the United States are still subject to capitalization and amortization over 15 years—a restriction that is designed to encourage businesses to onshore their R&E operations.
Under the OBBBA, businesses also have the option to deduct qualifying unamortized R&E expenditures from 2022, 2023 and 2024 either immediately or over two years. However, they are not required to exercise this option if adhering to their pre-existing amortization schedule is preferable. Special provisions apply to small businesses (those with average gross receipts of $31 million or less) that offer the opportunity for potential tax savings related to R&E expenditures capitalized in 2022, 2023 and 2024 as well.
This is just a very brief introduction to the R&E expenditure deduction provisions in the OBBBA. For businesses that are eligible to take R&E expenditure deductions, it will be important to work with experienced tax counsel to ensure compliance going forward.
Facing Scrutiny from the IRS for Improper R&E Expenditure Deductions
Businesses that improperly claim R&E expenditure deductions on their federal tax returns can expect to face scrutiny from the IRS. The IRS has prioritized corporate tax compliance in recent years, and it has placed particular emphasis on both invalid deductions and small business compliance.
With this in mind, businesses that claim immediate R&E expenditure deductions in 2025 and beyond should be prepared for the possibility of facing an IRS audit. Among other things, this means ensuring that they have adequate documentation to substantiate their R&E expenditure deductions and that they have experienced counsel at the ready to interface with the IRS on their behalf.
Request a Confidential Consultation with Washington D.C. Business Tax Attorney Kevin E. Thorn
Washington D.C. business tax attorney Kevin E. Thorn has extensive experience representing clients in complex federal tax matters. If you have questions or concerns about facing IRS scrutiny related to your business’s R&E expenditure deductions, you can call 202-349-4033 or contact us online to arrange a confidential consultation.
