Big Beautiful Tax Relief For Small Businesses — R&D Tax Credit

The One Big Beautiful Bill Act (OBBB) has a number of important provisions providing tax relief for small businesses. However, one of the most notable is the targeted tax relief for innovative small and medium businesses that qualify for the R&D tax credit – providing retroactive relief to a highly burdensome capitalization requirement of research expenditures.

As background, the 2017 tax relief bill included as a payfor a requirement that R&D expenditures had to be capitalized/amortized (previously most companies expensed). While requiring capitalization of R&D was a grind for larger businesses – requiring capitalization of R&D was a wipeout for many small and medium businesses.

Small and medium companies that alliant works with would commonly be upside down due to the new requirement of capitalizing R&D. For example, a small manufacturer in the Midwest went from roughly being in the black $250k to being in the red $750k.

As readers know, I had been raising the flag on the burden of capitalizing R&D expenditures on small and medium businesses for some time. I was confident that if we could get the small business owners to raise their voices about this problem – Congress would listen (as we showed earlier with the AMT turnoff on R&D put in place a few years ago). There was early success in the previous Congress with then-Finance Chairman Wyden (D-OR) and Ways and Means Chairman Smith (R-MO) including retroactive relief as to R&D expensing in a bipartisan, bicameral tax bill. Unfortunately, that bill didn’t secure a Senate vote after passing the House.

However, with the new administration, there are new opportunities. alliant worked closely with small and medium companies as well as their CPAs to ring the bell to policy makers in Congress on the need to include retroactive relief as to the capitalization requirement in the OBBB. Thanks to the good work of Chairman Crapo (R-ID) as well as Senators Young (R-IN)(a leading voice on R&D in the Senate); Barrasso (R-WY); and Cassidy (R-LA) small businesses had success in getting retroactive relief from amortization of domestic R&D expenses.

I should note that the OBBB also — thanks in large part to Senator Daines (R-MT) who was Horatio at the gate on the issue of permanency – makes the R&D fixes permanent. Happy day.

The OBBB provides two transition/retroactive rules for taxpayers.

1. Allows taxpayers with less than $31 million in revenue to elect to retroactively apply expensing back to 2022.
2. Allows all taxpayers (not just those with less than $31 million in revenue) that amortized their research expenditures to elect to recover their remaining 2022-2024 domestic research either in 2025 or ratably across 2025 and 2026.

The Trump Treasury has been helpful in putting out taxpayer-friendly guidance on how small businesses can take advantage of this retroactive relief. IRS issued on August 28, 2025 Rev Proc 2025-28 that allows that small businesses can deduct 2024 174A expenses on original return – must amend 2022-2023 returns by the earlier of statute of limitations or July 6, 2026. The Rev Proc also allows small business taxpayers to make late 280C elections (or revoke timely 280C elections) on 2022-2024 amended returns prior to the earlier of the statute of limitations or July 6, 2026.

On September 5, 2025 – the Treasury added new language to the Rev Proc 2025-28 –that clarified how small businesses can deduct 2024 174A expenditures and recoup remaining 2022-2023 expenditures through a Sect. 481(a) adjustment on an original 2024 return.