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To Amend or Not? Navigating the 2025 Tax Reform R&E Expense Deduction and Retroactive Relief for Small Businesses

Article

September 5, 2025

One of the most impactful provisions of the “One Big Beautiful Bill Act,” P.L. 119-21, enacted on July 4, 2025, for many businesses was the reversal of the 2022 requirement for all domestic research and experimentation (R&E) expenses to be capitalized and amortized over five years.

All taxpayers — not just small businesses — may choose to deduct any remaining unamortized domestic R&E expenditures from 2022 – 2024 either entirely in 2025 or spread the deduction evenly over 2025 and 2026. Alternatively, taxpayers can continue amortizing these costs pursuant to their preexisting schedules.

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Small Business Transition Relief

Small businesses — specifically, taxpayers other than tax shelters that meet the Section 448(c) gross receipts test (with average annual gross receipts of $31 million or less for the three years preceding 2025) — are eligible for special transition relief. These businesses may retroactively elect Section 174A expensing, allowing them to amend their 2022 – 2024 returns and potentially claim substantial refunds resulting from these additional deductions.

Critically, the IRS recently issued Revenue Procedure 2025-28, which provides the compliance-related details taxpayers need to take advantage of this transition relief. Some of the prescribed actions are time-sensitive and are due by September 15, 2025.

Pros and Cons of Amending 2022 – 2024 Tax Returns for R&E Deductions

At first glance, it may seem advisable for all eligible businesses to make this election. However, if the research credit under Section 41 is claimed, the deduction for domestic R&E expenditures must be reduced by the amount of the credit, or the taxpayer may elect a reduced credit under Section 280C(c)(2). When a taxpayer amends these returns, they will effectively forfeit 21% of each year’s tax credit.

In practice, the potentially cumbersome (and costly) process of generating additional deductions and subsequent refunds involves amending both business and individual tax returns (assuming pass-through entity status). It is important to note that processing times for amended returns, as well as potential IRS scrutiny, may be considerable, with the possibility of delays ranging from six to 12 months or longer before a refund is received.

By foregoing 21% of your 2022 – 2024 research and development credits, or reducing the amount of deductible interest expense reported on the return as originally filed, the acceleration of your anticipated refund may be marginal — potentially advancing the receipt by only a few months, if at all, compared to claiming the deduction on a timely filed 2025 tax return.

In our experience, there are specific circumstances where pursuing retroactive amendments proves advantageous despite the cost and complexity, including:

If you are contemplating a business sale in 2025, it may be more advantageous to utilize the ordinary deduction to offset ordinary income, rather than potentially applying it against capital gains, depending on the specifics of the transaction structure.
In situations where losses are anticipated or there is insufficient taxable income projected for subsequent years to fully utilize the deduction within a reasonable timeframe, it may be prudent to accept a reduction in the R&D credit in order to secure a refund through amended returns. This approach can be beneficial when the alternative is allowing losses to simply carry forward.

Conclusion

Ultimately, the decision between utilizing the special transition relief for small businesses versus opting to deduct in 2025 warrants careful analysis. Small businesses should work closely with tax professionals to thoroughly assess all relevant factors before proceeding.

Your Guide Forward

To understand how the 2025 tax reform affects your business and to develop a tailored strategy, contact your Cherry Bekaert professional. Our team is ready to help you navigate the new tax landscape with clarity and confidence.

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