The Small Software Business Alliance (SSBA) and our members are pleased to see the full annual restoration of the research and development (R&D) expenditures provisions under Section 174. This change reverses the mandatory five-year amortization requirement that has been in place since 2022, delivering much-needed relief and certainty for small business innovators across the United States. Additionally, a retroactivity program for small businesses was created to help companies under a certain threshold receive refunds for annual expenses incurred as a result of having to amortize the deduction since 2022.
This fix is a massive victory for innovators and entrepreneurs. Now, small businesses can move their businesses forward, reinvesting in hiring, expansion, and product deployment without the cash-flow squeeze of amortization. As put by our executive director, Alexandra Cooke, “SSBA was founded with the single goal of restoring this critical small business tax incentive, and we are proud to say we did it! The deduction has long been characterized as benefiting big tech, but through education, advocacy, and countless meetings, SSBA members showed policymakers that it’s small tech companies that rely on it the most.” Below, we’ve outlined everything you need to know about the reinstatement of the annual R&D deduction and the small business retroactivity program.
Key Highlights of the New Provisions
- Full Immediate Expensing of Domestic R&D Costs
- Effective for tax year 2025, and all years following, domestic R&D expenses will be fully deductible in the year they were incurred.
- Retroactivity Function from 2022-2024 for Small Businesses
- Businesses with an average annual gross receipt of $31 million or less over the past three years may elect to amend prior year returns to claim an immediate deduction for R&D expenses incurred from 2022 through 2024.
- “Catch-up” Deductions
- Businesses over the $31 million threshold may deduct the remaining unamortized 2022-2024 costs either entirely in 2025 OR evenly over the 2025 and 2026 tax years.
- Foreign R&D Expenses
- Unchanged – still requires a 15-year amortization under current law.
Retroactivity: Step-By-Step Guide in Getting Money Back
If you are a small business, we recommend reopening your 2022-2024 returns in advance of filing your 2025 taxes to determine what R&D expenses from those years would be eligible for immediate reimbursements. This section provides a general step-by-step guide to help members begin the process of checking eligibility, preparing, and submitting an amended filing. However, all members should consult with a certified financial advisor or a certified public accountant (CPA) for guidance specific to their business and to ensure accurate completion of the filing.
For the guide, we will use the following example to illustrate:
- Small Tech Company, LLC, wants to amend its prior tax expenses
Step 1: Confirm Eligibility
- Average their gross receipts over the past three tax years preceding the year you wish to amend.
- To amend the 2025 tax year expenses, take the average of the 2022, 2023, and 2024 gross receipts
- If the average over the three years is under the $31 million threshold, they qualify for the small business retroactivity election
Step 2: Documentation
- Collect all original R&D expense records and reports for 2022, 2023, 2024
- Collect all prior tax returns and identify where R&D costs were amortized under the former rule
Step 3: Prepare Amended Return Documents
- Work with their financial advisor to prepare relevant amended return forms for their specific entity type
Step 4: Make the Retroactivity Election
- Include a statement with a 174A election as referenced in the updated statute
Step 5: File by the Deadline
- Amended returns and election statements must be filed by July 4, 2026
- There is currently no formal IRS guidance related to the filing process; the IRS is expected to issue guidance soon outlining amendment processes.
Why This Matters
Restoring immediate expensing under Section 174 provides small businesses with the certainty to invest in innovation and expand their operations. The small business retroactivity provision further allows eligible companies to unlock cash flow that can be reinvested to strengthen long-term competitiveness. For years, our members have advocated on how these changes will support and revitalize small business growth across the United States—including in our June 2025 letter to Senate leadership, urging full expensing and retroactivity to 2022. We’re thrilled to see all their hard work pay off.
SSBA’s Commitment and Moving Forward
While the reinstatement of Section 174 provisions is a major win for small businesses, there is still more work ahead. We will continue engaging with the IRS and congressional tax committees to ensure these changes are implemented smoothly and any administrative hurdles are swiftly addressed. In the coming weeks, we plan to host SSBA member-only briefings with tax administration experts to guide members through the retroactivity process, required documentation, and potential strategic considerations.