Exploring Tax Incentives for Business Innovation: Research and Development Tax Credits
Boosting Domestic Innovation: Recent Trends in Research and Development Tax Credits
Research and Development (R&D) tax credits have become a significant factor for businesses engaged in innovative activities, particularly in the realm of patent law and economic policy. These financial incentives, provided by governments to stimulate innovation and promote R&D activities, have undergone notable changes in recent years, with a particular emphasis on domestic innovation.
In 2025, the U.S. introduced the One Big Beautiful Bill Act (OBBBA), which marked a significant shift in R&D tax credit policies. The OBBBA reversed the prior requirement to amortize domestic R&D expenses over five years and restored full expensing, allowing immediate deduction of qualified domestic R&D expenses in the year incurred. This change improves cash flow and aligns tax benefits with actual investment timing.
The OBBB Act also separated domestic and foreign R&D costs, with domestic R&D costs falling under new Section 174A, benefiting from favorable immediate expensing, while foreign R&D costs remain amortized under Section 174. This separation aims to encourage innovation within the U.S.
The definition of "qualified research expenses" under Section 41 was updated to include only expenses "treated" as R&E expenditures under Section 174A, reflecting a tighter alignment with domestic research activities. Section 280C was amended to require taxpayers to reduce their domestic R&E expenditures by the amount of the R&D credit claimed, restoring the rule to pre-2017 TCJA standards but allowing a Section 280C election option to reduce the credit instead. Businesses that had to amortize expenses during 2022–2024 may be able to reclaim missed deductions by filing amended returns under the new rules.
Other jurisdictions have followed suit, with states like Michigan enacting or reviving R&D tax credits, and others introducing refund options for R&D credits to boost cash flow for claimants. There is bipartisan support in the U.S. for restoring or enhancing R&D expensing provisions, reflecting recognition of R&D tax incentives as critical for economic competitiveness.
In summary, the current trend—particularly in the U.S.—is to restore immediate deductibility of domestic R&D costs, tighten the focus of credits to domestic research, and support taxpayers by enabling reclamation of past missed deductions. These changes reflect a strong policy drive to foster innovation domestically. Several states are adopting or renewing their own R&D credit programs to further incentivize research investments.
- The One Big Beautiful Bill Act (OBBBA) in 2025, in the United States, has revised the landscape of intellectual property rights by restoring the full expensing of qualified domestic R&D expenses, promoting technology-driven advances in education-and-self-development sectors.
- Recognizing the significance of intellectual property rights and technological advancements for economic competitiveness, bipartisan support in the U.S. is growing for restoring or enhancing immediate deductibility of domestic R&D costs, thereby fostering innovation and support for research investments in education-and-self-development industries.
