The One, Big, Beautiful Bill and the deductibility of R&E expenses

The treatment of research and experimental (R&E) expenses is a high-stakes topic for U.S. businesses, especially small to midsize companies focused on innovation. With the previous tax code the deductibility of these expenses is limited, leading to financial strain for companies that used to be able to expense them immediately. But The One, Big, Beautiful Bill drastically changes that. Here’s what you need to know.

Before, R&E expenses were capitalized

Before 2022, under Section 174 of the Internal Revenue Code, taxpayers could deduct R&E expenses in the year they were incurred. This treatment encouraged investment in innovation, as companies could realize a current tax benefit for eligible costs.

However, beginning in 2022, the Tax Cuts and Jobs Act (TCJA) changed the rules. Under the law, R&E expenses must be capitalized and amortized over five years for domestic activities and 15 years for foreign activities. This means businesses can’t take an immediate deduction for their research spending.

The practical impact on businesses

Startups, tech firms and manufacturers, in particular, have reported significant tax hikes, even in years when they operated at a loss. The shift from immediate expensing to amortization has created cash flow issues for innovation-heavy firms and complicated tax reporting and long-term forecasting.

Lobbying groups, tax professionals and industry associations have been pushing for a reversal of the TCJA’s Sec. 174 provisions since they took effect.

How does this change with The One, Big, Beautiful Bill?

The One, Big, Beautiful Bill is a comprehensive tax and spending package that contains a provision to restore the immediate deductibility of R&E expenses, among other tax measures. 

Specifically, it allows taxpayers to immediately deduct domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. This provision also makes other changes to the deduction.

The bill provides a lifeline to many businesses burdened by the amortization requirement — especially those in high-growth, innovation-focused sectors—restoring financial flexibility to innovators across the country and encouraging a new wave of research, development and economic growth.

Contact us at Satty & Partners if you have questions about how these changes can affect your business.