The following is a guest article by UHY partner Todd Sutherland. The views expressed herein are solely those of the author.

Recently enacted federal tax legislation—the One Big Beautiful Bill—introduces significant changes to the tax treatment of research and development (R&D) expenditures. After years of uncertainty caused by the 2017 Tax Cuts and Jobs Act, CFOs finally have clarity and, in many cases, significant relief opportunities.

The law restores immediate expensing for domestic R&D costs, provides flexibility in handling unamortized balances, and offers retroactive relief for small businesses. Taken together, these changes not only simplify compliance but also provide new levers for cash flow management, tax strategy, and long-term planning.

Restoration of Immediate Expensing

For tax years beginning after December 31, 2024, businesses can again fully deduct domestic R&D costs in the year they are incurred.

This reverses the TCJA requirement that businesses amortize domestic R&D expenses over five years and foreign R&D expenses over fifteen years. The mismatch between spending and deduction created a liquidity drag, especially in industries with heavy upfront R&D investment.

By restoring current-year expensing, the new law realigns tax treatment with the realities of innovation financing. Business owners and finance teams can expect improved cash flow timing, reduced reliance on external financing, and greater flexibility to reinvest in growth. For organizations balancing labor costs, capital expenditures, and digital transformation initiatives, this change could significantly impact capital allocation decisions.

New Options for Unamortized Balances

For companies with unamortized domestic R&D costs accumulated under the old rules, the law offers two options starting in 2025:

  • Deduct the entire remaining balance in 2025, or
  • Spread the deduction evenly between 2025 and 2026.

This decision is more than an accounting exercise. For businesses, it requires careful tax forecasting and scenario modeling.

  • Companies expecting unusually strong taxable income in 2025 may benefit from a one-time deduction.
  • Businesses that value earnings smoothing may prefer to spread the deduction.
  • Multinational entities should also consider interactions with foreign tax credit limitations, transfer pricing, and global minimum tax rules.

This flexibility allows CFOs to align R&D tax treatment with broader business objectives, whether reducing volatility, lowering the effective tax rate, or enhancing balance sheet optics.

Retroactive Relief for Small Businesses

Perhaps the most striking aspect of these changes is the retroactive relief for businesses that meet the "small business gross receipts test," defined as average annual gross receipts of no more than $31 million for the three prior years before 2025.

These businesses can amend their 2022, 2023, and 2024 returns to immediately deduct previously amortized R&D costs. In effect, the TCJA's five-year rule no longer applies to them.

But the window to take advantage of this provision is limited: businesses have only one year from the date of enactment to file amended returns. For venture-backed startups or rapidly expanding businesses, this relief could translate into millions of dollars in liquidity that can be redeployed toward hiring, technology investments, or extending the operational runway.

For small and mid-sized businesses, this may be one of the most impactful tax planning opportunities in recent history. Notably, the AICPA has requested additional guidance from the IRS and Treasury on the specifics of retroactive claims.

Strategic Considerations for CFOs and Tax Executives

While the law simplifies compliance, its greater significance lies at the strategic level. Leadership should work with CFOs to evaluate the new rules from multiple angles:

Cash flow optimization.Immediate expensing enables finance teams to recover cash more quickly, improving liquidity in a high-interest-rate environment where external financing costs are elevated. Companies may be able to self-fund expansion or defer equity financing.

Tax rate management.The choice between immediate expensing and spreading should be modeled against expected profitability and potential tax rate changes. For example, if federal tax rates rise, deferred deductions could generate greater value.

Coordinating new opportunities with existing R&D tax credits.R&D tax credits remain fully available. Since deductions and credits interact, CFOs and tax executives should ensure that all qualifying activities are captured, such as software development, process improvements, and prototyping—not just traditional laboratory research. Proper coordination can unlock "dual benefits" without violating IRS rules.

Investor relations and earnings visibility.Public company CFOs and tax executives must also consider how deduction choices affect reported earnings. A one-time deduction in 2025 could lower tax expense but introduce earnings volatility. Spreading the deduction over two years may better support predictable performance, which analysts often reward.

The Bottom Line

The One Big Beautiful Bill changes how businesses handle R&D costs. By restoring immediate expensing, providing flexibility for unamortized balances, and offering retroactive relief for small businesses, the law not only simplifies compliance but also strengthens the strategic toolkit.

In an environment where innovation is a competitive necessity and capital is costly, these reforms provide CFOs with a timely opportunity to enhance liquidity, reduce tax burdens, and align tax policy with business growth.

For CFOs and tax executives, the mandate is clear: act quickly, plan strategically, and turn tax reform into a catalyst for innovation.