Retroactive Relief for Small Businesses: Key Details

December 5, 2025

By Jackie Carl, CPA
Shareholder

The recent reversal of Section 174 R&D expensing rules is a game-changer for small businesses. With the One Big Beautiful Bill (OBBB), companies can now unlock significant tax savings by retroactively expensing domestic research and development costs that were previously required to be amortized. If your business qualifies, this relief could mean immediate refunds and a stronger financial position heading into the future.

Who Qualifies?

• Businesses with average annual gross receipts of $31 million or less over the prior three years (using Section 448(c) rules).
• Must not be classified as a tax shelter.

What’s Changed?

• The One Big Beautiful Bill Act (OBBB) allows eligible small businesses to retroactively apply immediate expensing for domestic R&D costs incurred in tax years beginning after Dec. 31, 2021 (i.e., 2022, 2023, and 2024).
• Instead of amortizing these costs over five years, you can now deduct the full amount in the year incurred by amending prior returns.

How to Claim Retroactive Relief:

• Amend 2022, 2023, and 2024 returns: File amended federal income tax returns to deduct domestic R&D expenses that were previously capitalized and amortized.
• Election Statement: Attach a statement to each amended return indicating you are making the small business OBBB election under Rev. Proc. 2025-28.
• Deadline: Amended returns must be filed within one year of the bill’s enactment (by July 4, 2026).

Benefits:

• Immediate Tax Refunds: Recover overpaid taxes from prior years, boosting cash flow and retained earnings.
• Financial Statement Impact: May require restating prior financials to reflect increased net income from retroactive deductions.

Strategic Considerations:

• Amend vs. Catch-Up Deduction: Small businesses can choose to amend prior returns or take a catch-up deduction in 2025 (or split between 2025 and 2026). Amending may improve cash flow and financial reporting but comes with administrative overhead. The catch-up deduction may be simpler for businesses with steady cash flow.
• Interest on Refunds: Refunds from amended returns may include interest, typically 7–8%.

What’s Not Covered:

• Foreign R&D expenses must still be amortized over 15 years.

Bottom line:

If you’re a small business, you can unlock significant tax savings by amending your 2022–2024 returns to fully expense domestic R&D costs. Review your eligibility, coordinate with your tax advisor and act before the July 2026 deadline to maximize your benefit.

If you need help evaluating your options or preparing amended returns, reach out to your advisor for guidance.