Tax
Section 174 (R&D Expensing)
The tax treatment of R&D costs: domestic R&D is immediately deductible again under §174A (OBBBA); foreign R&D is still amortized over 15 years.
From 2022 through 2024, Section 174 required R&D expenses to be capitalized and amortized over 5 years (U.S.) or 15 years (foreign), meaning a $500K R&D spend got only $100K deducted in year one.
The One Big Beautiful Bill Act (2025) added §174A, permanently restoring immediate deductibility for domestic R&D. Small businesses could elect to apply the relief retroactively to prior capitalized years. Foreign R&D is still capitalized and amortized over 15 years.
Most relevant to software development, engineering, scientific research, and product development costs. Any business writing internal software, building a SaaS product, or doing scientific work is affected.
Common pitfalls
- Forgetting that internal software development counts; building a custom CRM for your own use is Section 174 R&D
- Missing catch-up deductions for R&D capitalized in 2022–2024; the retroactive relief for small businesses had to be claimed
- Not coordinating Section 174 with the §41 R&D credit; they interact in non-obvious ways
Related service
See tax and CPA servicesRelated terms
Have a Section 174 (R&D Expensing) situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.