When President Trump’s “One Big Beautiful Bill Act” (OBBBA) took effect, its Research and Development (R&D) provisions caught businesses off guard. Hidden in its tax code are changes that will significantly reshape how businesses invest in discovery and speed breakthroughs to market. For companies staking their future on technology—from biotech to semiconductors—OBBBA isn’t just policy. It triggers massive innovation opportunities aimed squarely at American business.
Whether the bill will deliver the growth surge it promises —or conceals risks between the lines—remains an open question. To find the answer, let’s step back and look at why R&D matters, what exactly has changed in the law, and how businesses may ride this new wave of incentives.
R&D: The Engine Accelerating America’s Next Breakthrough
If the future belongs to those who innovate, then R&D is the vehicle driving us there. Every advancement in technology, from life-saving drugs to quantum computing, begins as an investment in research, with the promise of discovering what’s next.
For decades, nations have raced to pour resources into R&D, understanding that prosperity rises and falls on the strength of new ideas. The U.S., as a leading global investor, spends around 3.4% of GDP on R&D, but others have surged forward: Israel now devotes over 6% of GDP to research, South Korea nearly 5%, with total worldwide spending reaching an estimated $2.7 trillion in 2023. These investments spark jobs, unlock industries, and shape the world’s next big thing.
But here at home, the question has always been how to keep America’s innovation advantage. Policies, especially tax laws, can either unlock the capital needed for experimentation or slow the pace to a crawl. That’s where the OBBBA steps in: by rewriting the rulebook, it promises to unleash the cash and creativity businesses need to lead in discovery.
With OBBBA, the story shifts. No longer bound by restrictive accounting, companies eye new horizons, ready to invest boldly. The stage is set for a new chapter where American innovation may accelerate at unprecedented speed.
The OBBBA’s R&D Tax Overhaul
OBBBA boosts R&D investment through practical reforms across multiple areas:
- Immediate Deduction for Domestic R&D Expenses
Starting in tax years after December 31, 2024, businesses can fully deduct domestic R&D expenses (including software development) immediately. This overturns the TCJA requirement to spread costs over five years.
- Recovery of Previously Capitalized Costs
Businesses can recover any unamortized R&D costs—either all at once or ratably over two years—starting in 2025. That means cash tied up in accounting rules is suddenly freed.
- Small Business Provisions
Companies with average annual gross receipts of $31 million or less for 2022-2024 can retroactively apply these rules back to 2022, amending returns for relief. Companies that didn’t file 2024 can deduct their R&D on the original return.
- Foreign R&D Treatment
Expenses for research conducted abroad must still be amortized over 15 years. This creates a powerful incentive to keep research in the U.S.
- Research Tax Credit Adjustments
Companies must now reduce deductions by the value of their R&D tax credit (or take a reduced credit), preventing “double-dipping.” This reverts to pre-TCJA rules.
Immediate R&D Deductions Return
Companies can now deduct domestic R&D expenses immediately instead of spreading costs over five years. They can recover previously capitalized costs starting in 2025. Small businesses can retroactively apply these rules back to 2022.
This change frees capital upfront and reduces financial strain for startups running on thin margins. The ability to recover previously capitalized costs could inject much-needed liquidity back into the economy. Larger firms may find themselves rethinking their global footprints, as favorable treatment for U.S.-based research could draw activities back home and bolster hubs like Boston or Silicon Valley.
Impact on Major Companies
Moderna cut annual R&D spending by 23% to $1.1 billion between 2024 and 2027. The company warned that TCJA’s amortization rules forced delays in its R&D pipeline. It could no longer immediately expense research costs. Moderna’s president called this “forced pacing” due to amortization burdens. Under OBBBA, this burden disappears. Moderna can again deduct U.S.-based research immediately. This potentially frees hundreds of millions of dollars for reinvestment in new biotech. Beyond this, these provisions could encourage more mergers and acquisitions. Companies with large unamortized R&D portfolios now look especially attractive, since acquirers could realize immediate deductions. That may spark a wave of deal-making in sectors like tech and pharmaceuticals.
Risk Scenarios: What Could Go Wrong
Companies will naturally seek to maximize their research deductions, potentially expanding how they define qualifying activities. Tax authorities may respond with increased scrutiny and more audits. R&D-heavy industries such as semiconductors will enjoy substantial new advantages. This may create pressure for other sectors to boost their own research investments. The resulting demand for scientific and engineering talent will likely create a competitive hiring market favoring well-resourced firms.
Seize the Opportunity or Face Scrutiny
OBBBA’s R&D provisions make innovation more financially viable in the United States. They loosen TCJA constraints. Businesses can accelerate discovery and bring solutions to market faster. Companies must decide how to respond. Those treating incentives as loopholes could face harsh audits, while those genuinely advancing science and technology could lead a new innovation era.
In the end, the OBBBA sends a powerful message: the U.S. wants to be the world’s innovation engine—and is willing to bet its tax code on it.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
