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Navigating New R&E Expense Rules for Small Businesses in the U.S.

Small businesses must act fast—recent U.S. law changes affect how research & experimental (R&E) expenses are deducted and may require amended returns before upcoming deadlines.

By NomadicTax Research Team · 5-8 min read

What’s Changed Under the New Law

The One, Big, Beautiful Bill (OBBB) enacted changes to how businesses can deduct domestic and foreign Research & Experimental (R&E) expenses. Notably, small businesses can now make elections to apply the new rules retroactively for tax years starting after December 31, 2021, up to before January 1, 2025. (taxpayeradvocate.irs.gov)

Key Deadlines & What You MUST Do

  • July 6, 2026: deadline to act. This applies if you're claiming relief for those earlier tax years via either amended returns or Administrative Adjustment Requests (AARs). (taxpayeradvocate.irs.gov)
  • If your business incurred R&E expenses in 2022–2024, now’s the time to gather statements and review tax returns to determine whether the new rules provide better benefit. You may need to file corrected returns. (taxpayeradvocate.irs.gov)

How Small Businesses Can Take Action

  1. Calculate both old and new deduction scenarios – compare what you claimed vs. what you could claim under OBBB.
  2. Review form eligibility – ensure that all relevant costs (labour, materials, contract research etc.) are documented appropriately.
  3. File amended returns or AARs if necessary, before the deadline.
  4. Work with trusted advisors or CPAs, to avoid misinterpretation and make sure you get full benefit of deductions. Seeking professional help is especially important under transformed rules.

Examples in Practice

  • Example A: A tech startup in California with R&E expenses in 2023 could file an amended 2023 return using new rules to significantly improve its deductions.
  • Example B: A small manufacturing business with foreign R&E projects may now include those under the domestic rule, if electing properly for pre-2025 years.

Risks & Considerations

  • Ensure documentation meets IRS requirements—poor support may lead to audit adjustments.
  • Amending returns may trigger additional state-level filings or adjustments in other tax credits/depreciation schedules.

Action Plan Summary

  • Check whether your business incurred R&E expenses in 2022-2024.
  • Gather all supporting documentation (contracts, receipts, payroll records).
  • Consult tax professionals to assess whether amending is advisable.
  • File required amended returns or AARs by July 6, 2026 to preserve eligibility.

By staying informed and proactive, businesses can fully leverage these changes to improve tax outcomes while staying compliant.

Sources

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