Whether you own, manage, or support an engineering firm, you should be really excited about how the Big Beautiful Bill removes the capitalization requirements for R&D tax credits, creating a cash flow windfall for many firms.
Who Should Care?
R&D tax credits are much more broadly applicable than many people realize. They aren’t just available to software or biotech companies.
Industries That Benefit:
- Software Development
- Manufacturing
- Bioscience
- Technology
- Engineering
- Architecture
Investors
Venture capitalists, private equity managers and others with a vested interest in companies that innovative should spot check any holdings.
The amount of firms that have never filed for R&D tax credits is surprising, AND they can amend 2022 filings forward.
Primary CPAs May Not Be Aware
Like many nuanced matters handled by our tax credit specialists, R&D tax credits are not within the normal scope of a small accountant’s work. We partner with primary CPAs to provide the studies and supporting documentation.
A Brief History of R&D Tax Credits
At the federal level, research and development has always been seen as a good thing for the country and its future. Firms should be innovating, ensuring future economic benefits.
So a company that engages in activity that passes the R&D Tax Credit Four Part Test gets to reduce its tax payment by the amount of the credits.
The great thing was you could claim the credit without having to amortize or lose a mass amount of deductions for that year immediately, which gave you a nice boost to cash flow. You pay less taxes and can use that extra cash to power your business.
But then something changed…2022 brought a tax law updates that significantly impacted how we treated R&E expenses and the benefit of claiming the R&D credit.
2022 Brings the Requirement to Capitalize R&D Expenses
In 2022, a requirement was added that you had to capitalize the expense (spread it out over many years) meaning the reduction to your taxes owed/positive impact to your cashflow became much smaller.
So imagine that you had lots of R&D expenses in 2022. By having to amortize these expenses, you increased your tax liability in that tax year. While you had a great R&D tax credit, the impact of the loss of deductions was detrimental to the business and was now much less lucrative.
So the incentive became a lot less valuable and some firms didn’t even claim the benefit.
The Big Beautiful Bill Makes the Expense Immediately Available Again
But now, the law has reverted back to how it was pre-2022. You get to use the full expenses in the tax year in which you spent the money on research and development.
“Section 174A” is actually what reinstates a business’s ability to immediately deduct domestic research expenses.
Book a Free R&D Tax Credit ConsultationThe Statute of Limitations Is Still Open: You Can Still Amend 2022
…And claim the missed benefits of 2022 and more recent years.
But you have to get your filings in ASAP. We can help.
But Wait…The Benefits Are Retroactive? Over or Under $31M in Revenue?
What Did You Do for 2022, 2023 & 2024?
Some businesses fully complied with the law (Section 174) from 2022 forward. Others delayed.
However you proceeded, you have the opportunity to examine your filings and take advantage of the Big Beautiful Bill’s treatment of research and development expenses.
Still others weren’t even aware this credit existed.
For Profitable Firms, Your Benefit Depends On Your Revenue
<$30M: A Potential Refund
That’s right.
You get the cash immediately.
Now that you no longer have to amortize your R&D expenses in 2022, 2023, and 2024, you may amend the returns and utilize the credit as you would have pre 2022. Dollar for dollar credit against your tax liability without amortizing and losing your deductions in those years.
You’ll need to amend your returns and then your refund will be processed.
>$30M: A Huge 2025/2026 Deduction
Unfortunately larger firms don’t get the ability to retroactively go back, but they now are able to take those amortized deductions and expense them in 2025 and/or 2026 and no longer have to amortize their expenses going forward!
Different rules but still a great win for larger firms going forward!
Revenue Consideration:
Under $30M in Revenue: Cash Refunds for 2022, 2023, & 2024 “Overpayment” Are Available Now
Your innovative firm didn’t get the benefit as it was originally intended for 2022-2024.
Now you can.
We can help you prepare your study and receive a cash refund upon amendment.
Over $30M in Revenue: Use 2022, 2023, & 2024 expenses Against 2025/2026 Taxes
Your larger innovative firm didn’t get the benefit as it was originally intended for 2022-2024.
Now you can.
We can help you prepare your study and use your full benefit against your 2025/2026 taxes.
Unprofitable Startups
Unprofitable firms with less than $5M in revenue and less than 5 years old can still use the benefit against payroll taxes. Up to $500,000! We’ll be happy to discuss and assist with the your filings.
Next Steps
Be aware the statute of limitations for 2022 is closing for most firms next year? Be sure that you discuss your eligibility for R&D tax credits from 2022 forward.
Corporate Tax Advisors provides free initial consultations to businesses and their CPAs throughout the week. Book one today:
Book a Free R&D Tax Credit Consultation
