What is the R&D Tax Credit?

The Research & Development (R&D) Tax Credit is a federal incentive designed to encourage businesses to invest in innovation here in the U.S. This credit allows companies to offset the cost of qualifying R&D activities by reducing their tax liability—freeing up capital to reinvest in growth.

Despite its potential, fewer than 1 in 3 eligible businesses actually claim the credit. That means many companies may be missing out on a significant financial opportunity.

As of July 2025, key changes to the R&D tax credit have gone into effect that may significantly impact how your company reports and benefits from R&D expenses.

These updates include expanded eligibility, faster deductions, and even opportunities to amend prior-year tax returns for potential refunds.

What’s New in 2025

• Permanent R&D Expensing:
  U.S.-based R&D expenses would once again be immediately deductible in the current year, permanently eliminating the requirement to amortize domestic R&D costs.

• Retroactive Relief for Small Businesses:
  Businesses with less than $31 million in gross receipts now get the benefit of these expensing rules retroactively back to 2022, potentially opening refund opportunities for the past few years.

• Relief for Prior-Year Amortization:
  Companies that already began amortizing under the prior rule may accelerate remaining deductions over the next 2 years, creating helpful short-term cash flow relief.

• Foreign R&D Still Amortized:
  Expenses tied to foreign R&D activities must still be amortized over 15 years, maintaining a tax incentive to keep innovation domestic.