R&D tax planning for 2025 and 2026

The big picture: Why this matters for your company

If your company invests in research and development (R&D), the way you report costs on your tax return plays a meaningful role in your overall tax strategy.

The One Big Beautiful Budget Act (OBBBA), signed into law in July 2025, introduced a new framework for deducting R&D costs. For companies operating at a loss, the immediate impact may feel minor. However, for those planning for profitability, positioning for an acquisition, or anticipating an IPO in the next few years, the decisions made now can have a real impact on future tax liabilities.

A quick history: How we got here

For many years, the tax rules for R&D were relatively founder friendly. Companies could generally deduct their research costs in the year incurred. The treatment was straightforward and aligned well with economic reality.

That changed in 2022, when a provision from the 2017 Tax Cuts and Jobs Act (TCJA) took effect and required companies to capitalize their R&D costs and amortize them over several years. For companies spending heavily on research, this created a significant mismatch - real cash outflows were no longer matched with corresponding tax deductions.

The timing issue hit startups in the tech and life science space particularly hard. Collaboration agreements, licensing deals and partnership arrangements often generate significant upfront or milestone-based revenue. Under the old rules, that revenue was typically offset by concurrent R&D spending—resulting in little or no taxable income in those years. Under the new rules, those same expenditures were no longer immediately deductible, leaving unexpected and sometimes substantial tax bills in years assumed to be tax neutral. This mismatch was one of the most frustrating and unanticipated consequences of the change.

In response, Congress has been working toward a solution, culminating in the OBBBA.

What the new rules actually change

Immediate expensing is available again—but not automatic

Under the new framework, companies can once again choose to deduct domestic R&D costs in the year they are incurred, rather than spreading them over multiple years. However, this is not an automatic or default position. Both immediate expensing and capitalization require a formal accounting method change - a specific filing with the IRS - and once made, that method applies for a meaningful period going forward.