An official website of the U.S. Gov
If your business has research and experimental (R&E) expenses, recent tax law changes may affect how you deduct those costs and whether you can claim relief for prior tax years.
The One, Big, Beautiful Bill Act changed the tax treatment of certain domestic and foreign R&E expenses. The IRS has also issued guidance explaining how eligible taxpayers can make elections, file amended returns, and request accounting method changes.
If you own a small business, now is the time to review your options and determine whether you need to take action before important filing deadlines.
Some small businesses can apply the new domestic R&E rules to prior tax years beginning after December 31, 2021, and before January 1, 2025.
To do this, you may need to file amended returns or Administrative Adjustment Requests (AARs).
For many taxpayers, the deadline to make this retroactive election is July 6, 2026. However, some taxpayers may have an earlier deadline because the normal refund claim deadline still applies.
Generally, you must file by the earlier of:
Depending on your situation, you may also need to submit statements, amended forms, or make adjustments to research credits previously claimed.
TAS encourages taxpayers to file electronically whenever possible.
If you must mail documents close to a deadline, do not rely on placing them in a USPS collection box. Instead, take them to a post office counter and use a mailing method that provides a postmark or dated proof of mailing.
You may qualify if your business:
For tax years beginning after December 31, 2024, the gross receipts test generally looks at average annual gross receipts for the previous three tax years. The inflation-adjusted limit for 2025 is $31 million.
Eligible small businesses may be able to apply the new domestic R&E rules to prior tax years.
Because these elections can affect multiple tax years, deductions, credits, and accounting methods, review all affected returns carefully before filing.
You may also want to consult a qualified tax professional.
For tax years beginning after December 31, 2024, domestic R&E expenses generally can be deducted in the year they are paid or incurred.
Taxpayers may instead elect to capitalize those expenses and amortize them over at least 60 months, beginning with the month they first realize benefits from the expenditures.
If you still have unamortized domestic R&E amounts from tax years beginning after December 31, 2021, and before January 1, 2025, you may be able to recover those amounts:
Software development costs are generally treated as R&E expenditures under these rules.
Foreign R&E expenses generally must be capitalized and amortized over 15 years.
The amortization period generally begins at the midpoint of the tax year in which the expenses are paid or incurred.
The R&E rules are closely connected to the research credit under section 41 and the reduced credit election under IRC § 280C.
If you claim the research credit, you may need to:
Revenue Procedure 2025-28 provides limited procedures that may allow eligible small businesses to make certain late elections or revoke prior elections for eligible years.
If you are filing retroactively, review any prior:
Depending on your circumstances, you may need to file or attach:
Before filing an amended return, AAR, or making a retroactive election, consider these steps:
Portions of this article were developed with the assistance of artificial intelligence. All AI-assisted content has been reviewed, verified, and approved by TAS staff to ensure accuracy and integrity.
