Article by Diane Stogiannes, B.Sc., CDI.D.
R&D expensing is back, and so is American innovation. On July 4, 2025, the U.S. did more than celebrate independence—it reclaimed its innovation edge. With the signing of what’s been dubbed the Big Beautiful Bill, Congress officially reversed one of the most damaging tax changes to U.S. businesses in recent history: the Section 174 amortization requirement.
Starting in 2025, businesses can once again immediately expense their U.S.-based research and development costs—restoring critical cash flow and reigniting the spirit of innovation.
Why This Matters
The 2022 change to Section 174 had a chilling effect on U.S. innovation. For decades, immediate R&D expensing helped fuel everything from medical breakthroughs to advanced manufacturing. But once amortization became mandatory, even the most innovative companies were forced to rethink their strategies.
According to the Information Technology and Innovation Foundation (ITIF):
“The change led to a 5–10% reduction in R&D spending by some large U.S. firms, with several publicly stating they were shifting work overseas to offset the financial strain.”
A Stanford Institute study shared by DST earlier this year warned that:
“The U.S. is at risk of falling behind globally in innovation, with tax policy now acting as a deterrent rather than a catalyst.”
We saw this firsthand at DST Advisory Group. Clients who once led the charge in technological advancement were hit hard. Startups delayed hiring. Mid-size manufacturers paused equipment investments. Public companies scaled back next-gen R&D—all to preserve cash.
What Changed—And Who Benefits
Here’s what the new law provides:
- Immediate expensing of U.S.-based R&D for all businesses starting in 2025
- Small businesses (gross receipts ≤ $31M) may retroactively deduct 2022–2024 R&D expenses or elect full expensing in 2025
- Flexibility to deduct unamortized 174 costs in 2025 or spread over 2025–2026
- Foreign R&D remains subject to 15-year amortization
For the over 20,000 U.S. companies that claim the federal R&D credit annually, this change restores alignment between innovation and incentive. It also strengthens the utility of the Section 41 R&D Tax Credit, which now sits on firmer ground when paired with immediate expensing.
At DST, we don’t just watch the policy landscape—we act on it. Our Tax Engineers and Consultants immediately began revisiting clients’ strategies the moment this legislation passed.
What You Can Do Now
- Reassess Your R&D Forecast If you pulled back R&D investment over the past 3 years, now is the time to revisit your 2025–2026 pipeline and hiring plans.
- Amend Past Returns (If You Qualify) For small businesses under $31M in gross receipts, electing retroactive treatment could yield immediate cash refunds. DST can help assess eligibility and file efficiently.
- Re-evaluate Your Section 41 Claim With full expensing back in play, make sure you’re also maximizing your R&D tax credits—particularly if you’ve historically excluded ASC 730 or software costs.
- Get a Complimentary Scope-Out DST offers free scope-outs to identify gaps, create a customized work plan, and ensure your documentation is aligned with evolving IRS expectations.
We believe in data, strategy, and relationships—and this policy change gives all three room to breathe again. The United States just hit “reset” on a key lever for growth. Now, let’s get back to building.
If you’re wondering how these changes impact your business—or how to capture the upside—we’re here to help.
Reach out to start the conversation or book a free scope-out.