IRS Issues Guidance on Research Expenditures in Light of the One Big Beautiful Bill Act
The IRS has begun releasing guidance for how taxpayers should handle the new tax rules introduced by the One Big Beautiful Bill Act (OBBB), and Revenue Procedure 2025-28 is some of the first official direction.
The OBBB lets businesses immediately deduct domestic R&D costs starting in 2025, allows small businesses to retroactively expense past costs, provides options for deducting unamortized expenses and keeps the rule that foreign R&D costs must be spread out over 180 months.
Revenue Procedure 2025-28 provides clarifying information for how to treat research expenses under Section 174.
How To Deduct R&D Expenses
The guidance explains that starting in 2025, businesses can either deduct domestic R&D costs all at once or spread them out over at least 60 months, giving taxpayers flexibility in how these costs are reported.
To use either option, you need to attach a statement to your tax return that shows which method you’re choosing and confirms you qualify.
Normally, to change how you report R&D expenses on your taxes, taxpayers would complete Form 3115. However, for this transition year, taxpayers can simply attach a short statement to your tax return instead. This streamlined process saves you time and paperwork, making it much simpler to update how you handle R&D costs on your taxes.
Retroactive Options for Small Businesses
If you’re a small business (with average annual gross receipts of $31 million or less), you can go back and apply these new rules to previous years (starting with tax years after December 31, 2021).
However, this would require elections to be made on timely filed returns and amended returns, and in the case of some partnership returns, an administrative adjustment request would be required. These elections must be made by July 6, 2026.
Small businesses can also make or undo certain choices related to the research tax credit for past years by amending their returns and following the steps in the guidance.
Extra Time to File
If you already filed your 2024 tax return but want to take advantage of these new rules, you can supersede your previously filed 2024 tax return until November 15, 2025.
Learn More and Connect With an Advisor
The guidance provided in Revenue Procedure 2025-28 makes it easier for businesses and individuals to apply the new, more flexible rules for deducting R&D expenses. It also gives extra time and simpler steps for making changes, so you don’t miss out on tax benefits. To learn more about how this guidance impacts your unique company, contact your Warren Averett advisor directly.
