Research and Development for Businesses

Previously, the R&D credit allowed businesses to write off qualifying R&D expenditures, but those costs had to be amortized over five years. Under OBBBA, full expensing of domestic R&D expenses is made permanent. You have several options for claiming this deduction. Consult your tax advisors to determine which tax credits your business qualifies for and which would benefit the company most.

Another benefit for small business owners is how the R&D credit works with the new expensing rules. This special tax credit allows smaller companies that engage in research and development activities to offset their business's tax liability. It's meant to encourage them to innovate, create, and conduct research that is useful to society.

DEDUCTION OR CREDIT?

The law prevents you from receiving both a deduction and a credit for the same expenses. Instead, you must reduce the amount of domestic R&E expenditures you expense by the amount of the research credit you claim. For example, if you have $100,000 in qualifying R&D expenses and claim a $10,000 research credit, you can deduct only $90,000 of those expenses.