Last updated on September 5th, 2025

The One Big Beautiful Bill Act, enacted in early July, imposes sweeping changes across the U.S. tax code. Our most recent article focused on the provisions of the One Big Beautiful Bill (OBBBA) most relevant to manufacturing companies. One of the most significant provisions for manufacturers is the updated treatment of research and development expenses. This article will discuss the recent changes to R&D expensing under the OBBBA and what these changes mean for manufacturing going forward.

How has the OBBBA changed R&D expensing?

For the last several years, following the passage of the Tax Cuts and Jobs Act (TCJA) of 2017, companies have been required to amortize—or gradually write off—domestic research and development expenses over a five-year period (15 years for foreign R&D activities). However, the OBBBA restores the immediate expensing of research costs that existed before the passage of the TCJA. This restoration of pre-TCJA policy represents a win for manufacturing companies, who can once again fully deduct domestic research and development costs in the year paid. In addition, all companies (regardless of size) that made domestic R&D expenditures between 2022 and 2024 may elect to accelerate the remaining deductions for those expenditures over one or two years. Note that the new rules apply only to R&D activities occurring within the United States. R&D activities taking place outside of the United States are still required to be capitalized and amortized over a 15-year period.

What is the benefit for manufacturers?

Manufacturers are now able to fully deduct the cost of domestic R&D activities in the year paid, which reduces taxable income, improves cash flow, and frees up capital. Manufacturers can use the additional capital to invest in product development, new technologies, and other forms of innovation.

What are the additional benefits for small manufacturers?

Small businesses averaging $31 million or less in annual gross receipts may elect to apply the change retroactively for tax years beginning after December 31, 2021. This means that eligible small manufacturers can amend their 2022-2024 tax returns to claim refunds for R&D costs incurred during those years. Small businesses making this election must do so by July 4, 2026 (one year following the passage of the OBBBA).

What’s next?

The changes to R&D expensing under the OBBBA open up new tax-saving opportunities for manufacturers. However, several factors need to be taken into consideration, such as elections for acceleration and/or retroactive application of the law, as well as other factors such as the interplay between R&D expensing and federal R&D tax credits. We encourage you to meet with one of our manufacturing accounting professionals, who can answer your OBBBA-related questions and help you update your tax strategy in light of the recent tax law changes. Let us help you make the most of new tax-saving opportunities. Give RBT CPAs a call today, and find out how we can be Remarkably Better Together.