Unlocking Innovation: How “The One, Big, Beautiful Bill” Could Transform R&E Expense Deductibility
The way U.S. businesses deduct research and experimental (R&E) expenses may soon change — and significantly for the better. A new legislative proposal known as The One, Big, Beautiful Bill aims to roll back recent tax law changes that have made R&E investments more financially burdensome for companies, particularly startups, manufacturers, and tech innovators.
If passed, this bill could restore the immediate deductibility of R&E expenses, offering critical relief to businesses focused on innovation, research, and development.
Current R&E Tax Treatment: A Barrier to Innovation
Before 2022, Section 174 of the Internal Revenue Code allowed businesses to deduct qualifying R&E expenses in the same year they were incurred. This incentivized innovation and supported cash flow for companies making significant investments in research.
However, under the Tax Cuts and Jobs Act (TCJA), beginning in tax year 2022, R&E expenditures must be capitalized and amortized — over five years for domestic expenses and over 15 years for foreign-based research. This shift has created major financial and tax reporting challenges for innovation-driven businesses.
Impact on Small and Midsize Businesses
The amortization requirement has hit small and midsize businesses the hardest. Many startups, technology firms, and manufacturers have faced increased tax liabilities — even in years when they didn’t turn a profit. This has strained cash reserves, hindered growth, and disrupted long-term planning.
Industry groups, tax professionals, and business coalitions have actively lobbied for changes to Section 174 since the TCJA provisions took effect.
What Is The One, Big, Beautiful Bill?
Passed narrowly by the U.S. House of Representatives in May, The One, Big, Beautiful Bill is a sweeping tax and spending package that includes a key provision: restoring the immediate deductibility of domestic R&E expenses.
Key provisions include:
- Restoration of immediate R&E expense deductions for tax years beginning after December 31, 2024, and before January 1, 2030.
- Enhanced tax relief for innovation-heavy sectors, including technology, biotech, and manufacturing.
- Additional adjustments to how Section 174 expenses are treated for tax purposes.
This bill could significantly ease the financial burden placed on businesses by the current capitalization rules and reestablish the tax incentives that fuel innovation and economic growth.
Legislative Outlook: What Comes Next?
While The One, Big, Beautiful Bill has cleared the House, its future remains uncertain. The U.S. Senate is currently reviewing the legislation and may propose revisions. If changes are made, the bill must return to the House for another vote before reaching the President’s desk for final approval.
Despite the uncertainty, this legislative push signals growing awareness among lawmakers about the challenges businesses face under the current tax regime — and a willingness to support pro-innovation tax reform.
What This Means for Your Business
If enacted, this legislation could:
- Improve cash flow and tax planning for innovation-focused companies
- Support long-term R&D investments
- Reduce tax burdens for startups and small businesses
- Drive economic growth by reinvigorating private-sector research
Stay Informed and Prepared
The tax landscape is evolving rapidly, and potential changes to R&E expense deductibility could have a major impact on your business strategy and bottom line.
Contact our team of tax professionals today to understand how these changes could affect your operations — and how to prepare for what’s next.