If your startup spent money on software development, product R&D, or technical experimentation between 2022 and 2024, there is a tax opportunity you may be leaving on the table — and a hard deadline to claim it.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, reversed one of the most damaging tax rules for startups introduced since 2022. For founders who act before July 2026, the savings can be substantial. For those who miss the window, the opportunity is gone permanently.
Sources for this post: Bloomberg Tax, Gusto, Cherry Bekaert, IRS Revenue Procedure 2025-28, and alliantgroup’s Section 174 guidance.
What happened with R&D taxes between 2022 and 2024?
Before 2022, businesses could deduct R&D expenses in full in the year they were incurred. A company that spent $500,000 on engineering could deduct $500,000 that same tax year.
The Tax Cuts and Jobs Act of 2017 introduced a delayed provision — effective January 1, 2022 — requiring all R&D costs to be capitalized and amortized over 5 years for domestic research and 15 years for foreign research (Source: IRS Section 174, Bloomberg Tax).
The practical effect: a company that spent $1,000,000 on domestic R&D in 2022 could only deduct $100,000 that year. The remaining $900,000 was spread across the next five years, meaning founders paid taxes on income they had already reinvested into the business.
According to Gusto’s analysis of this rule change, many small and revenue-generating startups that had owed no income tax under the previous rules found themselves facing significant unexpected tax bills starting in 2022. Many businesses either were unaware of the change, did not apply it correctly, or could not afford the resulting tax bills.
What changed in July 2025?
The One Big Beautiful Bill Act, signed July 4, 2025, created a new provision called Section 174A that permanently restored immediate expensing of domestic R&D expenditures (Source: Bloomberg Tax, Cherry Bekaert, alliantgroup).
Starting with tax years beginning on or after January 1, 2025, businesses can once again deduct 100% of qualifying domestic R&D expenses in the year they are incurred.
What qualifies for immediate expensing under Section 174A (Source: IRS, Cherry Bekaert):
What does NOT qualify for immediate domestic expensing:
Important: Immediate expensing is the default for 2025 domestic R&D. No special elections or paperwork are required to use it (Source: Pasques Partners, alliantgroup).
The July 2026 deadline you cannot miss
The new law also provides retroactive relief for the amortization years (2022-2024), but with a hard deadline.
If your startup had average annual gross receipts of $31 million or less:
You may be eligible to amend your 2022, 2023, and 2024 tax returns to expense your domestic R&D costs immediately, rather than continuing to amortize them over five years. The deadline to make this retroactive election is July 4, 2026. (Source: Gusto, Cherry Bekaert, alliantgroup, IRS Rev. Proc. 2025-28)
After that date, the opportunity is permanently closed.
If your startup had average annual gross receipts above $31 million:
You cannot amend prior returns for this purpose, but you can accelerate all remaining unamortized domestic R&D costs from 2022-2024 into your 2025 tax return — taking the full amount in 2025, or splitting it 50/50 between 2025 and 2026. (Source: Cherry Bekaert, Bloomberg Tax, IRS Rev. Proc. 2025-28)
Note: Foreign R&D costs (research conducted outside the US) are not eligible for any of these retroactive provisions. They continue to be amortized over 15 years regardless. (Source: Bloomberg Tax, Gusto)
How the Section 174A deduction and Section 41 R&D tax credit work together
The Section 174A immediate expensing deduction and the Section 41 R&D tax credit are two separate tax benefits that can be used in combination — but with an important coordination rule (Source: Bloomberg Tax, IRS Section 280C).
The Section 41 R&D tax credit reduces your tax liability by approximately $0.13 for every dollar of qualifying research expenses (Source: Gusto). For early-stage companies with no income tax liability, a portion of this credit can be applied against payroll taxes — up to $500,000 per year — making it valuable even for pre-revenue startups.
The coordination rule under Section 280C: if you claim both the Section 174A deduction and the Section 41 credit on the same expenses, your deduction must be reduced by the amount of the credit, or you can elect a reduced credit instead. You cannot receive the full benefit of both on the exact same dollar of spending. (Source: Bloomberg Tax, Cherry Bekaert)
Cherry Bekaert notes that determining whether to amend prior returns for the refund — which involves forfeiting 21% of the prior years’ research credit — versus taking the catch-up deduction in 2025 or 2026 requires careful modeling for each specific situation. A qualified tax professional should model which combination produces the better outcome.
What you should do right now
1. Identify your qualifying domestic R&D spend from 2022-2024
Pull together engineering salaries, contractor costs, and direct R&D expenses for each of those years. Separate domestic from foreign spend if applicable.
2. Determine if you are under the $31 million gross receipts threshold
Calculate your average annual gross receipts for the three years prior to 2025. If you are under $31 million, you are eligible for the retroactive amendment option.
3. Model the amended return vs. the forward-looking position
The right answer depends on whether you claimed R&D credits in those years, your current year income, and your projected future taxable income. This is not a one-size-fits-all calculation.
4. Act before July 2026
The statutory deadline for the retroactive election is July 4, 2026. Given IRS processing times and the complexity of amended returns, starting now — not in June — provides the margin to do it correctly.
At Glye, our team of Big 4-trained accountants (trained at PWC, Deloitte, and KPMG) works directly with startups on tax planning and compliance. If you want to understand whether the Section 174 changes apply to your company, book a free 30-minute call at glyeconsulting.com.