By Nick Hopkins, CPA, CFP®
Partner, Director of Tax Services
Email Nick
Key Points
The repeal of Section 174 amortization allows businesses to fully deduct 2025 research and experimental costs and deduct unamortized amounts from 2022 – 2024, creating significant year-end planning opportunities.
Qualified small businesses may also have the opportunity to amend 2022 through 2024 returns to capture retroactive research deductions and potential refunds, depending on eligibility and cash flow needs.
Updated Section 179 limits and 100% bonus depreciation provide larger deductions for equipment and software placed in service by year-end, making timing critical for 2025 tax planning.
What’s Changed with Research and Experimental Cost Deductions and Equipment Expensing?
With only a few weeks remaining in the year, business owners now have an opportunity to capture newly available deductions that apply to the 2025 tax year. The repeal of the amortization requirement for research and experimental costs (Section 174) means you may again deduct these costs in the year they occur. This change applies to your 2025 activity and brings meaningful benefits for companies investing in development, innovation, software, testing, or process-improvement work.
At the same time, higher limits for equipment and software expensing (Section 179) and 100% bonus depreciation (Section 168) allow for larger deductions on machinery, technology, vehicles, and other assets placed in service before the end of the year. These updates can reduce taxable income on your 2025 filings.
What Does the Updated Research and Experimental Cost Treatment Mean for My Business?
The updated rules for research and experimental costs allow your business to deduct 2025 qualifying expenses in full this year. This restores immediate expensing and replaces the amortization requirement that applied during 2022 through 2024.
You must also decide how to handle the remaining amortized research costs from those three years. The law provides two choices for companies that do not qualify under the small business election:
- Deduct all remaining amortized research costs on your 2025 return
- Split the deduction evenly between your 2025 and 2026 returns
Can Small Businesses Amend Prior Returns for Research and Experimental Costs?
Qualified small businesses with average gross receipts below $31 million for the 2022 through 2024 period have the option to amend prior returns to deduct research and experimental costs retroactively, potentially reducing taxable income in those earlier years and generating refunds. As the year comes to a close, it is essential to assess whether this option provides a meaningful benefit.
Before choosing to amend, consider:
- How a potential refund fits with your current cash-flow needs
- Whether amending will affect owner-level reporting or loss positions
- The administrative steps and costs involved
Some companies may benefit more from immediate refunds, while others may prefer the larger catch-up deduction available on 2025 filings. A careful review can help identify the most beneficial path.
Should I Use Equipment and Software Expensing for My Year-End Purchases?
Equipment and software expensing under bonus depreciation or Section 179 offers one of the most effective ways to reduce taxable income before the end of the year. This makes equipment expensing a valuable tool for businesses planning to purchase or install equipment, technology, software, or other qualifying assets before year-end.
Qualifying assets may include:
- Machinery and equipment
- Computers and business technology
- Certain vehicles
- Software
- Office furnishings
- Qualifying improvements to commercial property
How Do Research and Experimental Cost Deductions and Equipment Expensing Work Together?
Research deductions and equipment expensing both influence your taxable income for 2025, making it essential to evaluate them together. A significant deduction for research costs may affect how much value you gain from equipment-related deductions in the same year. Likewise, decisions about amending 2022–2024 returns may shift income in ways that impact your equipment expensing strategy.
When reviewed together, business owners can better understand:
- Expected income for the 2025 tax year
- Timing of equipment or technology purchases
- How deductions affect cash flow
- The impact of state depreciation rules
- Effects on partner or shareholder reporting
A coordinated approach ensures that your decisions support both your current-year tax position and your long-term financial planning.
How to Make the Most of These Tax Changes
With only days left in the year, this is the time to review any activities that may qualify as research or development, determine whether you meet the small business threshold for amended returns, and confirm that planned equipment or software purchases will be placed in service before December 31. These choices will directly affect your 2025 tax return and your overall cash flow.
Sponsel CPA Group can help you evaluate your options, determine the most beneficial deductions, and ensure your reporting stays accurate and compliant. Our team is ready to review your situation, model your scenarios, and guide you through a smooth and strategic year-end process. Contact us today to discuss the next best steps for your business.
Frequently Asked Questions (FAQs)
Does my business need to be a research company for these rules to apply?
No. Many businesses have qualifying expenses related to software development, testing, engineering, or process improvement activities.
Should every small business amend prior-year returns?
Not always. While refunds may be available, amending can affect other elections or create additional administrative steps.
Can I use equipment expensing and bonus depreciation together?
Yes, and we can help identify which combination creates the best overall tax outcome.
What if my business did not follow the research cost rules in earlier years?
You may still have options to correct treatment and take advantage of the deductions now available for 2025.