3 R&D Tax Strategies to Maximize Deductions Under the OBBBA (2025 Update)

R&D Tax Strategies 2025

In July, the One Big Beautiful Bill Act (OBBBA) delivered major wins for companies investing in R&D. Since 2022, businesses have had to amortize R&D costs over five years under Section 174, driving up taxes for many innovative companies. While the R&D tax credit remained valuable, the loss of immediate deductions was painful.

Now, thanks to OBBBA and IRS Rev Proc 2025-28, businesses can once again recover R&D costs and cut taxes. At ATS, we've been helping clients navigate these changes. Here are three R&D Tax strategies small businesses (under $31M in receipts) should consider.

Strategy 1: Deduct All 2024 R&D Costs and Amend Prior Years

Small businesses can deduct all 2024 R&D expenses and amend 2022–2023 returns. Pairing this with R&D credits restores the old system: deduct costs and claim credits. Profitable companies may receive refund checks, and you'll have six months to supersede your 2024 return if needed.

How This Strategy Works

Step 1: Expense all R&D on 2024 return

Make the election under Section 174A
Attach required statement to tax return
Deduct full R&D expense amount

Step 2: Amend 2022 and 2023 returns

File Form 1040-X or 1120-X for each year
Attach election statement
Claim full R&D deduction instead of amortization
Recalculate R&D credits if applicable

Step 3: Receive refunds

IRS processes amendments in 12-16 weeks
Receive refund checks for overpaid taxes
Earn interest at ~7% while IRS processes

Who Should Use This Strategy

Best for:

Companies that were profitable in 2022-2024
Businesses that paid significant taxes due to forced amortization
Companies that want immediate cash refunds
Businesses with good documentation already in place

Example Scenario:

Series B SaaS Company:

Revenue 2022: $8M, 2023: $12M, 2024: $18M
R&D costs each year: $3M
Previously amortized: $600K/year
Actually owed: $2.4M/year in deductions

Tax Impact:

2022 additional deduction: $2.4M × 21% = $504K refund
2023 additional deduction: $2.4M × 21% = $504K refund
2024 additional deduction: $2.4M × 21% = $504K savings
Total 3-year benefit: $1.5M+

Plus state tax refunds of $300K-$400K depending on the state.

Advantages of This Strategy

Maximum cash recovery - Get refunds for 2022-2023 overpayments
Immediate benefit - 2024 return reduces current-year tax
Interest earned - IRS pays ~7% interest on refunds
Clean slate - All years properly reported going forward
M&A ready - Clean tax attributes if selling soon

Considerations

CPA time and fees - Amending takes effort
IRS processing delays - Refunds take 3-4 months
Documentation requirements - Must support all years
Statute of limitations - Must file 2022 amendment by April 15, 2026

Strategy 2: Deduct All Amortized R&D Costs in 2025/2026

Tax planning may show it's smarter to recover R&D assets in 2025 or spread them across 2025–2026. For R&D-heavy companies, this could significantly lower net income. Careful timing of deductions and credits can minimize tax payments in high-profit years.

How This Strategy Works

Instead of amending prior years, you use Form 3115 to recover all previously amortized R&D in 2025 (or split between 2025-2026).

Step 1: File Form 3115 with 2025 return

Request change in accounting method
Automatic consent - no IRS pre-approval needed
Calculate § 481(a) adjustment

Step 2: Calculate unamortized R&D balance

Total R&D capitalized in 2022-2024
Less: Amounts already amortized
Equals: Remaining balance to recover

Step 3: Deduct via § 481(a) adjustment

Full adjustment in 2025, or
Split 50/50 between 2025-2026

Who Should Use This Strategy

Best for:

Companies expecting high income in 2025-2026
Businesses that want to avoid amending prior returns
Companies close to the statute of limitations on 2022
Businesses that want maximum 2025-2026 deductions

Example Scenario:

Manufacturing Company:

2022-2024 R&D costs: $12M total ($4M/year)
Amortized to date: $2.4M
Remaining balance: $9.6M
2025 projected income: $15M
2026 projected income: $20M

Tax Planning:

Option A: Full deduction in 2025

§ 481(a) adjustment: $9.6M
Plus 2025 R&D: $4M
Total 2025 deduction: $13.6M
Reduces 2025 taxable income to $1.4M
Tax savings: ~$2.8M

Option B: Split 2025-2026

2025 § 481(a): $4.8M
2026 § 481(a): $4.8M
Spreads deduction across two high-income years
Avoids creating large NOL

Advantages of This Strategy

Timing flexibility - Use deductions when income is highest
No amendments needed - Saves CPA time and fees
Faster benefit - Don't wait for IRS refund processing
Strategic planning - Coordinate with other deductions and credits
NOL management - Avoid creating NOLs if not beneficial

Strategic Considerations

When to use full 2025 deduction:

Very high 2025 income
Want to eliminate taxes completely
Don't mind creating NOLs

When to split 2025-2026:

Moderate income in both years
Want to use deductions efficiently
Avoid NOL 80% limitation

Strategy 3: Claim R&D Tax Credits Aggressively

There is now no downside in claiming R&D Tax Credits. Combined with recovering amortized R&D, credits can slash taxes, sometimes close to zero.

The Power of Combining Deductions and Credits

This is the magic formula:

Step 1: Expense or recover R&D costs

Creates deductions that reduce taxable income
May create Net Operating Losses (NOLs)

Step 2: Claim R&D Tax Credits

Dollar-for-dollar tax reduction
Can be carried forward 20 years
Can offset payroll taxes for qualifying startups

Step 3: Coordinate timing

Use deductions to reduce income
Use credits to eliminate remaining tax
Carry forward what you can't use

Important Interactions to Understand

R&D Deduction Recovery Could Produce NOLs

Recovering all R&D assets in 2025 may produce a net operating loss. Keep in mind:

NOLs can be carried forward indefinitely
NOLs are limited to 80% use in any future year
NOLs reduce taxable income (indirect benefit)

R&D Credits Can Be Carried Forward

R&D Credits and NOLs can be used together in 2025 and 2026 to lower taxes as far as possible. Any unused credits can be carried forward for 20 years and can be used at full value to reduce future taxes.

Credits Are More Valuable Than NOLs

Why? Because:

Credits = 100% value, dollar-for-dollar tax reduction
NOLs = 80% limitation, only reduce income (not tax directly)
Credits survive M&A better under Section 382/383
Credits can offset AMT; NOLs cannot

Carefully planning recovery of previously amortized R&D costs with R&D credits can ensure that both are used to maximize tax reduction for a business.

Example: Maximizing the Combination

Growth Stage Software Company:

2025 projected income: $5M
Unamortized R&D: $8M
2025 current R&D: $3M
Available R&D credits: $400K

Tax Calculation Without Credits:

Taxable income: $5M
Less: § 481(a) adjustment: ($8M)
Less: 2025 R&D: ($3M)
Net: ($6M) NOL
Tax: $0
NOL carryforward: $6M

Tax Calculation With Credits:

Same NOL of $6M
R&D credits: $400K to carry forward
In future years: Use NOL first (80% limit), then credits
Maximum tax efficiency

2026 and Beyond:

If 2026 income is $10M:
- Use $8M NOL (80% of $10M)
- Taxable income: $2M
- Tax before credits: $420K
- Apply $400K credit
- Net tax: $20K

This is incredibly powerful for companies approaching profitability.

Other Considerations

When choosing between these strategies, consider:

Tax Rates and Profit

In which years will the business pay higher taxes or have more income? If 2024 was a lower profit year but 2025 profits are projected to be large, it may make sense to use Strategy #2 (recover in 2025).

Decision Framework:

Low income in 2022-2024, high income in 2025-2026:

Use Strategy #2 (recover in 2025-2026)
Reason: Deductions more valuable in high-income years

High taxes paid in 2022-2024:

Use Strategy #1 (amend prior years)
Reason: Recover overpaid taxes immediately

Consistently profitable with high income:

Use any strategy - all will save significant taxes
Consider Strategy #1 for immediate cash

Time Value of Money

Strategy #1 will provide refunds for years where the business paid outsized taxes due to the loss of deductions but there will be delays in processing. You will earn interest of about 7% while the IRS processes this, however, it may be faster to realize the benefit from OBBBA by deducting all amortized R&D in 2025.

Refund Timeline:

E-filed amendments: 12-16 weeks
Paper amendments: 16-20 weeks
Interest rate: ~7% APR

2025 Benefit Timeline:

File 2025 return: April 2026
If refund due: 6-8 weeks
Faster than amending 2+ prior years

Costs of Amending Tax Returns

Amending takes effort. Plan for CPA fees:

Simple amendment: $2K-$5K per year
Complex amendment with R&D study: $5K-$15K per year
Form 3115 for 2025 recovery: $3K-$8K

ROI Calculation:

If you're recovering $500K-$2M in tax benefits, CPA fees of $10K-$30K are well worth it. Typical ROI is 20:1 to 50:1.

Bottom Line

OBBBA gives small businesses flexibility in how they recover R&D costs and claim credits. The right strategy depends on profits, timing, and long-term planning.

Quick Decision Guide

Choose Strategy #1 if:

You paid high taxes in 2022-2024
You want cash refunds immediately
You have time before statute expires
You need M&A-ready tax attributes

Choose Strategy #2 if:

You have high income projected in 2025-2026
You want to avoid amending complexities
You're close to statute of limitations on 2022
You want maximum current-year deductions

Choose Strategy #3 (or add to #1 or #2) if:

You have significant R&D activities
You want to maximize total tax benefits
You're approaching profitability
You qualify for payroll tax offset (<$5M revenue)

The Winning Combination

Most of our clients use a combination approach:

Amend 2022-2023 (Strategy #1)
Expense 2024 R&D (Strategy #1)
Recover remaining balance in 2025 if needed (Strategy #2)
Claim R&D credits for all years (Strategy #3)

This maximizes:

Immediate refunds from prior years
Current-year tax savings
Future deductions and credits
Overall after-tax cash flow

Want to Maximize Your Tax Savings?

Contact ATS for a free R&D tax credit analysis. We'll help you:

Calculate your unamortized R&D balance
Model the tax impact of each strategy
Recommend the optimal approach for your situation
Prepare required forms and elections
File amendments or Form 3115
Claim R&D credits for maximum benefit

The window is time-sensitive. The 2022 amendment deadline is April 15, 2026, and thousands of companies will be filing amendments this year.

Get ahead of the rush. Schedule your free consultation today to discuss which strategy will save you the most tax.

[Calculate Your Credits] [Book A Call]

Don't let the complexity prevent you from claiming benefits you've already earned. With proper guidance, you can recover hundreds of thousands to millions in tax savings from R&D expenses you've already incurred.

3 R&D Tax Strategies to Maximize Deductions Under the OBBBA (2025 Update)