Best Practices: How can the One Big Beautiful Bill Act (“OBBBA”) affect R&D expenses?

We have received many questions regarding the One Big Beautiful Bill Act (“OBBBA”) so we wanted to share some thoughts with you.

OBBBA proposes rolling back the required capitalization of domestic R&D expenses under Section 174. If passed as currently drafted, this change would take effect for tax years beginning after December 31, 2024, allowing taxpayers to once again fully deduct domestic R&D expenses as incurred.

It’s important to note:

• Foreign R&D expenses would still be subject to 15-year capitalization.
• If the bill passes, we may also need to revisit how the R&D credit is calculated, including potentially reverting to the reduced credit under Section 280C. This would lower the value of the credit compared to what was claimed in 2024 (the reduction is a complete 21%).

While the bill has not yet been enacted, President Trump has publicly stated that he wants this bill passed by July 4. We aren’t sure that will happen, so we advise our calendar year clients to take a conservative approach to Q2 2025 quarterly tax estimates. Some clients want to reduce the Q2 2025 estimated payments, assuming domestic capitalization is repealed and the reduced credit applies. For clients who wish to achieve cash flow savings, be prepared to make Q3 adjustments should the bill not pass or if we see revisions to the 174/280C sections. If OBBBA is passed, whether this month or later in the year, the 174/280C sections are not likely to be left out of the bill or significantly modified. While there has been relatively zero public chatter about these code sections in the past six months, bipartisan support suggests that we won’t have to deal with domestic 174 capitalization much longer.

We have been asked about planning strategies for the long term. The 280C benefit that everybody received over the past few years was a drafting error. So it was nice while it lasted. The only planning area left available is to shift foreign work back to domestic workers. That is more easily said than done, and the amortization cost associated with foreign R&D isn’t likely going to drive our clients to want to shift work back to the US for the next five years. As a reminder, OBBBA only applies to expenditures incurred in tax years beginning after December 31, 2024, and before January 1, 2030. It’s just too expensive to make the change permanent.

A lot of 12/31 companies are about to make Q2 estimated payments.

If I were a tax person, I would tell my CFO that we could modify our Q2 payment based on the possibility that the law will change, as long as they are OK with bringing the Q3 payment back up if the bill is tanked for some reason.  If you are a small company it probably doesn’t matter, but a Fortune 500 company can earn a lot of interest by reducing those payments.

We’ll keep you updated as this evolves. Never a dull moment coming out of Washington!

Jason Massie, CPA, Esq.

As the Founder and President of MASSIE R&D Tax Credits, Jason is responsible for the quality, consistency, and integrity of our services. His strategic vision and leadership drive innovation within the company, encouraging collaboration and ne...