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2025 R&D Tax Credit Changes Explained for Startups

Posted: 3/18/2026

If you’re building something big, you’re spending on R+D. You may have wrestled with capitalization since 2022 and watched the R+D credit rules evolve. The new "One Big Beautiful Bill” (OBBB) reshapes how you expense research and development (R+D) costs.

TL;DR

Domestic R+D is expensable again starting in 2025, foreign stays amortized, and you have two ways to deal with 2022–2024. The right path depends on receipts, ownership, prior credits, and timing. Talk with your CFO or tax advisor—Book+Street can help you quantify the cash and stakeholder impacts.

But if you’ve got the time, here’s the quick tour.

What changed

  • 2022–2024: Businesses had to capitalize and amortize R+D (generally five years for domestic, fifteen for foreign), creating addbacks to taxable income and deferring deductions.
  • For tax years beginning after Dec 31, 2024: OBBB restores immediate expensing for 100% of domestic R+D. Foreign R&D remains amortized over 15 years.
  • Net effect: Stronger cash flow for U.S. development, with planning needed around foreign work.

Here are two pathways to fix prior-year amounts, from our friends at Arvo:

Option A — For all businesses

  • Who: Any taxpayer that doesn’t elect the small-business method.
  • What: Deduct the remaining unamortized 2022–2024 R+D either all in 2025 or split between 2025 and 2026.
  • When: First tax year beginning after 12/31/2024.
  • Why pick it: No amended returns; you generally keep any previously claimed R+D credits.

Option B — For small businesses

  • Who: “Small business taxpayers” with average gross receipts under $31M for 2022–2024.
  • What: Apply the change retroactively by amending (or via AAR) to expense 2022–2024 R+D now.
  • Deadlines: Election due by July 6, 2026, but watch statutes—some 2022 returns may close as early as March 15, 2026.
  • Consistency: If chosen, you must apply it for all affected years (2022–2024).
  • Considerations: Entity type, partner/shareholder effects, and IRS processing timelines can influence whether amending is worth it.

Don’t forget the payroll tax credit for startups!

Qualified small businesses (QSBs)—generally pre-revenue startups under five years old or with under $5M of revenue—may still use the R+D credit to offset up to $500K of federal payroll tax.

2025 best practices

  1. Tighten record keeping. Expect more scrutiny of what counts as R+D and who’s performing qualified activities.
  2. Separate old vs. current R+D. Present deferred 2022–2024 amounts distinctly from 2025 costs so margins and KPIs stay clear.
  3. Model both pathways. Compare cash, book, and investor impacts of amending vs. taking the catch-up in 2025/2026. Flag whether investors or partners might also need to amend.

Tax deadlines are looming, so if you have questions, we can help.We work hand in hand with Arvo to make sure your making the most of your R+D tax credit in 2025 and beyond!

You can check if you’re eligible for the tax credit with Arvo’s free calculator here!