Short answer: Yes—and they may be more valuable than ever.
For established businesses investing in process improvements, product development, or new technologies, the R&D tax credit remains a powerful tool in 2025. With recent tax law changes restoring full expensing of domestic R&D and new opportunities to reclaim past deductions, the credit can provide a meaningful reduction in your overall tax liability.
But as with any benefit this valuable, the rules are evolving—and getting it wrong could cost you.
What Changed in 2025?
The One Big Beautiful Bill Act (OBBBA), passed in mid-2025, included several major changes to federal tax law—many of which directly impact how businesses approach R&D. Here’s what matters most this year:
Full Expensing Is Back
For the past few years, businesses had to amortize their U.S.-based R&D expenses over five years. This increased taxes and created a lot of frustration.
In 2025, full expensing is restored. That means you can immediately deduct qualified research expenses in the year they occur, giving you better alignment between your investments and tax benefits.
You May Be Able to Reclaim Missed Deductions
If your business was forced to amortize R&D expenses in 2022–2024, you may be eligible to “catch up” and deduct those previously deferred amounts. This creates a valuable, one-time opportunity to amend prior returns or claim those deductions now.
IRS Scrutiny
New IRS guidance requires more detailed documentation—especially for businesses claiming over $1.5 million in qualified research expenses. Expect project-level tracking, timekeeping, and written support to be a necessary part of the process. A quality study will provide the documentation necessary to defend your R&D credit against IRS scrutiny.
What Qualifies as R&D?
You don’t need lab coats and beakers to qualify. Many companies overlook eligible activities that are embedded in their operations, such as:
- Developing or improving proprietary software (even internal-use tools)
- Enhancing manufacturing processes for speed, accuracy, or quality
- Automating workflows or integrating technology with physical systems
- Prototyping or testing new product features or configurations
- Solving technical problems with no clear-cut solutions at the outset
If your team had to experiment, test, revise, or engineer a solution—that may qualify.
Why It’s Still Worth It (If You Do It Right)
R&D credits aren’t just for reducing your tax bill—they can enhance cash flow, lower your effective tax rate, and free up capital for reinvestment. For established businesses, this can translate into:
- Greater capacity for future hiring
- Support for facility expansion or new tech adoption
- Higher confidence in long-term strategic planning
But timing and tracking matter more than ever. The IRS wants detailed backup. That includes project descriptions, documented uncertainties, cost allocations, and records of employee time tied to qualifying efforts.
What You Should Do Now
- Review your prior-year R&D expenses from 2022–2024 and see if you’re eligible for a catch-up deduction.
- Identify 2025 projects that may qualify under the expanded rules—especially if you’ve invested in automation, product upgrades, or tech integrations.
Talk to your CPA or tax advisor about creating a supportable documentation process going forward.
Final Thoughts
R&D tax credits in 2025 are still a strong value—but they require a smarter, more strategic approach. For companies already innovating in their day-to-day operations, this is a chance to turn past investments into real tax savings—and get ahead of the curve for future growth.
Want to know if your activities qualify? Our team can help you assess your eligibility, estimate your credit, and set up a compliant tracking process that won’t slow your team down. Contact us today!
