What Small Businesses Need to Do Now for R&D Expensing 2024
The One Big Beautiful Bill Act (OBBBA) permanently allows the deduction of domestic R&D expenses in the year incurred, starting with the 2025 tax year of all eligible businesses. The OBBBA also allows “small businesses” (those with average annual gross receipts of $31 million or less) to claim the deduction retroactively to 2022. The IRS recently issued guidance (Rev. Proc. 2025-28) which now allows qualifying small business taxpayers to apply §174A to domestic research expenditures in applicable taxable years, those beginning after December 31, 2021, and before January 1, 2025 (generally 2022–2024). Practically, you may deduct 2024 R&D costs on your 2024 original return (or elect §174A(c) amortization) if you qualify and follow the mechanics.
1) Confirm You’re Eligible
You are a small business taxpayer if both are true:
- You are not a tax shelter, and
- You meet the §448(c) gross-receipts test for your first tax year beginning after 12/31/2024 (i.e., average gross receipts for 2022–2024 are under $31 million).
2) Choose How to Treat 2024 Domestic R&D on an Original Return
Pick one approach (and use the same approach for all applicable years you had domestic R&D—2022–2024):
- Option A — Deduct now: deduct in the year paid or incurred (for 2024, deduct on the 2024 return).
- Option B — Elect to amortize: elect §174A(c), capitalize, and amortize ≥60 months.
3) How to Make the Election (And When a Statement Isn’t Needed)
Attach a statement to your original, AAR (“Administrative Adjustment Request”) or amended Federal Tax Return titled exactly:
FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28
Include all of the following in the statement:
1. Name and TIN of the taxpayer.
2. A declaration you are not a tax shelter for your first tax year beginning after December 31, 2024 (note if you will make the related §1.448-2(b)(2)(iii)(B) election).
3. A declaration you meet the §448(c) gross-receipts test for that first year after December 31, 2024 (i.e. average prior-3-year gross receipts for 2022-2024 of less than $31 million).
4. State which election you are making for domestic R&D in applicable years:
- Deduct in the year paid/incurred, or
- Capitalize and amortize under §174A(c). If amortizing, state you’ll capitalize the costs and amortize over at least 60 months, and list the number of months.
5. A declaration you will file AARs/amended returns (as needed) to apply the election to any other applicable years already filed before 9/15/2025 (i.e. 2022-2023 and 2024 if you’ve filed)
Insight
If you use this small-business election, you cannot also use the separate method-change route in Rev. Proc. 2025-23 §7.02(3)(c) for the same issue.
6. Deemed election. If you timely filed an applicable taxable year on an original return on or before November 15, 2025, and deducted domestic R&D on that return, you are deemed to have made the Section 3.03 election, no statement is required, provided you otherwise comply with Section 3.03 for all other applicable years. This deemed rule does not substitute for a §174A(c) amortization election.
Insight
For taxpayers looking for additional clarity/certainty, attach the statement on applicable tax filings regardless of deemed election.
4) 2024 Filing Relief: Superseding Returns
If you filed a timely 2024 return and did not extend, you may file a superseding return within six months of the original due date to make elections related to Section 174A.
5) Key Deadline for Amended/AAR Filings
File by July 6, 2026, or earlier if the refund statute (§6511) for an affected year expires sooner. Watch 2022 closely, if you filed 2022 before July 6, 2023, that earlier §6511 date controls.
Insight
If you make a valid election under Section 3, you won’t need to file a separate method change for your first tax year beginning after December 31, 2024, as long as the treatment of your R&D expenses in subsequent years is consistent with what is filed on your 2024 return.
Conclusion
Rev. Proc. 2025-28 provides welcome certainty and a practical path to deduct domestic R&D costs for 2024 under §174A. Eligible small businesses can either rely on the deemed-election route (if qualified), make an affirmative election with the Section 3.03 statement, or a superseding return. Taxpayers should work with their advisors to pick a path now, calendar the deadlines, and coordinate their tax strategy heading into the 2025 tax compliance season.
Warady & Davis LLP can help you evaluate your options and implement strategies to optimize your tax outcomes. Contact your W&D advisor at (847) 267-9600 or [email protected] for guidance.
This article was originally published by KBKG and is republished here with permission. Written by Jonathan Tucker and Paul McVoy, Principals – Research & Development Tax Credits, KBKG
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