R&D Tax Credit Update: Why Recent Federal Changes Should Be on Every Growth Company’s Radar

The Return of Immediate Expensing Creates New Opportunities for Innovation-Focused Businesses

This R&D tax credit update matters for companies investing in innovation, product development, process improvement, software development, engineering, and advanced manufacturing: recent changes to federal tax law may significantly improve project economics and cash flow.

The Research & Development (R&D) Tax Credit has long been one of the most valuable federal incentives available to businesses performing qualified research activities in the United States. However, recent legislative changes under the One Big Beautiful Bill Act (OBBBA) have renewed attention on the credit by restoring the ability to immediately deduct certain U.S.-based research expenditures beginning with tax years after December 31, 2024.

For executives evaluating capital investments, facility expansions, technology initiatives, or new product development efforts, these changes may create meaningful opportunities to improve after-tax returns and strengthen project economics.

Benefits

The R&D tax credit is primarily a wage-based federal credit, which is worth approximately 7.9% of qualified R&D activities. Thus, a taxpayer with $1M of qualified wages could receive a $65,000 benefit. Many states also offer R&D tax credit that can greatly enhance the value of the study. Further, the credit can often be claimed for prior tax years.

R&D Tax Credit Update: What Changed?

One of the most significant provisions included in the OBBBA restores same-year deductions for domestic research costs incurred after December 31, 2024. At the same time, foreign research expenditure continues to be amortized over 15 years. The legislation also introduced new IRC §174A provisions that allow an optional 60-month write-off and simplify certain accounting method changes.

From a business planning perspective, this creates a more favorable environment for companies conducting research and development activities within the United States.

The change is particularly noteworthy because it aligns federal tax policy more closely with broader economic development goals of encouraging domestic innovation, advanced manufacturing, technology development, and high-value job creation.

Many Companies Still Overlook the R&D Credit

One of the most common misconceptions about the R&D tax credit is that it only applies to laboratories, scientists, or large pharmaceutical companies.

In reality, the credit is available to organizations that design, develop, or improve:

• Products
• Manufacturing processes
• Software
• Techniques
• Formulas
• Engineering solutions
• Production systems

The industries claiming the credit are far more diverse than many executives realize and include manufacturing, aerospace, defense, agriculture, architecture, engineering, software development, telecommunications, automotive, biotechnology, food science, electronics, and many others.

For many companies, research activities occur every day without being recognized as qualifying activities for tax purposes.

Why This Matters for Economic Development

As a site selection advisor, I view this R&D tax credit update through a broader lens than tax compliance alone.

Tax incentives influence business behavior.

And when combined with state incentives, workforce programs, and strategic location decisions, they can materially improve the return on investment associated with growth initiatives.

Many states also offer companion R&D tax credits that can significantly increase the overall value of federal benefits. Companies making location decisions may find that the combined impact of federal and state R&D incentives creates meaningful differences in project economics from one state to another.

This makes R&D incentives an increasingly important component of comprehensive site selection analyses.

The Connection Between R&D Tax Credits and Site Selection

For organizations evaluating a new facility, expansion project, research center, engineering operation, or technology investment, incentives should never be evaluated in isolation.

Executives should consider:

• Availability of federal R&D benefits
• State R&D tax credits
• Workforce development incentives
• Training grants
• Property tax incentives
• Investment tax credits
• Utility costs
• Talent availability

The most successful projects often result from aligning multiple incentive programs rather than maximizing any single incentive opportunity.

In many cases, organizations focus heavily on capital investment incentives while overlooking recurring benefits associated with ongoing research and development activity.

That can leave significant value on the table.

Benefits of the R&D tax credit for Small Businesses and Startups

The R&D credit continues to provide valuable opportunities for smaller companies as well.

Businesses with less than $50 million in gross receipts may utilize the credit against Alternative Minimum Tax (AMT), while qualifying startups with less than $5 million in gross receipts may apply the credit against payroll taxes for up to five years (essentially making it a refundable credit for up to five years). Qualified small businesses (under $31 million gross receipts) may also be eligible for retroactive application of certain provisions covering 2022 through 2024, pending IRS guidance.

For emerging companies, improved cash flow can be just as valuable as the credit itself.

Strategic Questions for Business Leaders

As organizations prepare budgets, evaluate capital investments, and plan future growth initiatives, now is an appropriate time to ask:

• Are we performing activities that qualify for the R&D credit?
• Are we fully documenting those activities?
• Are we evaluating state R&D incentives alongside federal opportunities?
• How do R&D incentives affect our long-term location strategy?
• Are we maximizing the combined value of all available incentives?

The answers may reveal opportunities to improve cash flow, reduce tax liability, and enhance project ROI.

The Bottom Line

This R&D tax credit update represents more than a routine tax change.

They signal continued support for domestic innovation, product development, technology advancement, and manufacturing competitiveness.

For companies investing in growth, the R&D tax credit remains one of the most valuable and frequently underutilized incentives available.

Organizations that proactively evaluate these opportunities often find ways to improve project economics, support future investment, and strengthen long-term competitiveness.

Let’s Talk About Your Next Project

Whether you’re evaluating an expansion, a new facility, a technology investment, or a major product development initiative, incentives should be evaluated as part of a comprehensive growth strategy.

At Ashmore Consulting, we help companies identify, quantify, and maximize federal, state, and local incentive opportunities while aligning site selection decisions with long-term business objectives.

The best incentives strategies don’t just reduce taxes. They improve the economics of growth itself.

The information contained herein is general in nature and is not intended and should not be construed as legal, accounting, or tax advice or opinion provided by Ashmore Consulting LLC to the reader. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact Ashmore Consulting LLC or another tax professional prior to taking any action based upon this information. Ashmore Consulting LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.