The new Section 174A that came out of the One Big Beautiful Bill Act establishes different rules for past and future research and development spending — creating an opportunity for advisors.
For tax years after 2024, Section 174A permanently restores the ability to fully deduct domestic R&D expenses in the year they are incurred.
"This provides clarity and a powerful incentive for future innovation," noted Brett Johnson, the founder of Arvo Tech, which helps businesses maximize their tax strategies. "Foreign-based R&D expenditures, however, must still be capitalized and amortized over 15 years."
For 2022-2024 tax years, the new law provides very favorable transitional rules for businesses that incurred domestic R&D costs. Small-business taxpayers — those with less than $31 million in gross receipts during 2025 — can elect to expense rather than capitalize domestic R&D costs going back to 2022.
"This allows taxpayers that incurred R&D costs but did not claim the R&D credit to amend tax returns for 2022-2024 to capture the R&D tax credit benefit without capitalizing the related expenditures creating significant refund opportunities," Johnson noted.
"Businesses with more than $31 million in gross receipts during 2025 — large businesses — can elect to immediately expense any remaining capitalized and unamortized R&D costs," said Johnson. "While the process is slightly different, it results in very similar economics to those of small taxpayers, practically allowing large businesses to capture the R&D benefit for 2022-2024 and expensing all required capitalized costs by the end of 2025."
Arvo, originally part of an accounting firm in Columbus, Ohio, grew rapidly and along the way picked up several small accounting firms, according to Johnson. He cited the firm's focus on technology as a prime enabler of making tax creditsa available for small and midsized businesses that otherwise would find it cost-prohibitive to do a study on qualifying expenditures for the credit.
"Automation is at the heart of what we do," agreed Arvo chief executive Eric Emie. "Small and midsized businesses struggle with complex tax matters and basic questions regarding employees, revenue and other bookkeeping items."
Arvo client Robert Steffes, CTO and co-founder of Digioh, is an example of why clients need expert advisors.
"When dealing with large tax credits, … this is one area you don't want to take any chances with," said Steffes. "We had some things we ran into with capitalization, and the Arvo team went above and beyond to research and advise on a solution, which subsequently had a major positive impact on our application of the tax credits. After a successful engagement with Arvo for the R&D tax credit process, we are now also using them for help with other business tax advice, and they have become one of our most trusted partners."
