SSBA was joined by Matt Roberts and Erika Farr on all things new for R&D tax deductibility. Section 174 changes are in, but what does that mean for businesses? How can businesses leverage their position? What should they ask their CPAs? We answer your questions here!
Setting the Stage
For small software businesses, the last few years under Section 174 have created significant strains. Startups and software developers were often forced to capitalize and amortize research and development (R&D) costs over five years rather than deduct them immediately, even when those costs were central to building products, hiring a suite of new engineers, and generally staying afloat.
These were operational realities for founders, CFOs, and operators most affected by the recent changes. While fixes were enacted in the One Big Beautiful Bill (OBBB) Act, which added a new section 174A restoring the full deductibility of domestic research and experimental expenses for tax years beginning after December 31, 2024, the road forward is still not fully clear.
On March 26, 2026, the Small Software Business Alliance hosted a webinar to give businesses the knowledge and confidence, heading into the 2026 tax year, to maximize the benefits of the 174 deductions. Over the hour-long program, two of the most knowledgeable voices in the small business tax world walked attendees through the most consequential recent changes. Section 174 has become a lever for businesses once again, but you need to know the new rules to play the game.
What Changed and Why It Matters Now
Featuring Erika Farr, tax director at BPM LLP, a top global tax accounting and advisory firm, and Matt Roberts, CPA and founder of Better Credits and an SSBA member, the panel kicked off with our presenters walking through what software companies need to know about tax changes within OBBB.
They explained how OBBB restored the path for domestic expensing beginning in 2025 and highlighted that for small businesses, the focus should be on practical, actionable steps:
- Understanding your choices,
- What gets filed with your return, and
- Implications for cash taxes and compliance.
The tension between policy progress and practical complexity was a central theme throughout our conversation. Policy has moved faster than many businesses’ ability to absorb and operationalize the new guidance. Founders are hearing that Section 174 has been “fixed,” but the real story is more nuanced. As Erika notes: “The new law and guidance restore flexibility for domestic R&D, but outcomes depend on deliberate elections and documentation.”
Key Takeaway: The law is improved, yes, but businesses still need to work through questions about domestic versus foreign R&D, accounting method changes, treatment of prior-year amortization amounts, and how new elections and procedures interact with existing tax planning.
The Two-Lane Framework
To help businesses navigate the new decisions around R&D tax treatment, the panelists introduced a two-lane framework. Lane A covers new R&D costs starting in 2025, while Lane B addresses legacy R&D costs capitalized from 2022–2024. Eligibility plays a key role in determining the right path, particularly for small business retroactivity, so Erika recommended getting that analysis done early, before committing to a filing approach.
Lane A: New R&D in 2025
Businesses have two core options for new domestic R&D costs: deduct them as incurred or capitalize and amortize over at least 60 months. While many assume full expensing is now automatic, Erika stressed that the method must be properly adopted on the return with the correct attachments. For those choosing the deduction approach, IRS guidance allows businesses to make the change via a Statement in lieu of Form 3115 (DCN 273). Amortization remains a valid strategic choice as well — in some cases, immediate expensing can create losses that aren’t efficiently usable. Whichever method you choose, it’s binding for five years.
Lane B: Legacy R&D Balances (2022–2024)
For costs already capitalized, businesses have three options:
- Continue amortizing as scheduled,
- Accelerate remaining deductions in 2025, or
- Spread deductions across 2025–2026.
Small business taxpayers may also have the option to amend prior returns. One key takeaway: the new law doesn’t automatically fix prior-year treatment; companies still need to make deliberate choices about older capitalized costs.
Regardless of whether you are in Lane A, Lane B, or in the process of being in bothpplies to your business, and proper attachments and documentation are essential to making these elections real. Work with your CPA early to confirm eligibility and ensure your return reflects your intended approach.
Key Takeaway: Companies are faced with two separate decisions. First, they must determine how to treat new domestic R&D costs from 2025 and beyond. Secondly, they must separately decide how to handle legacy capitalization costs. Make sure you have all your reporting and attachment documents.
Moving Forward
Our conversation highlighted an important practical piece of advice: businesses should not wait until the return process is near. Founders and finance teams need answers upfront and to coordinate their tax filing strategies with their CPA as soon as possible. For smaller companies, the confusion around eligibility is especially important to clear up. We advise founders and leaders to talk with their finance teams to get their R&D strategies set and work with CPAs to fully understand their method selections before tax filing season arrives.
SSBA is grateful to Erika and Matt for their tremendous work in putting this program together. If you want to learn more about their work and how they can help, please see the links below for their contacts. SSBA remains committed to making better tax treatment policies, so small businesses can continue building the innovative technologies that change the world.