IRS Provides Guidance on 2024 R&D Expensing Rules for Eligible Small Businesses

On August 28, 2025, the IRS released Revenue Procedure 2025-28, providing long-awaited guidance on how taxpayers can change their method of accounting to expense domestic research or experimental (R&E) expenditures under Section 174A, enacted as part of the One Big Beautiful Bill (OBBB).

This update is particularly important for eligible small businesses because it clarifies how the 2024 tax year should be treated under the new rules.

Background: 174A Election for Small Businesses

Under OBBB, taxpayers with average annual gross receipts of $31 million or less over the 2022–2024 tax years may elect to apply Section 174A full deductibility retroactively. This election allows these businesses to shift the effective date from tax years beginning after December 31, 2024, to tax years beginning after December 31, 2021.

The statute also stated that taxpayers “shall file an amended return for each year affected by such election” — with amendments required by July 6, 2026. Based on that language, it was clear that amended 2022 and 2023 returns would be necessary, but there was uncertainty as to whether a 2024 amended return would also be required.

Key Takeaway: 2024 Amended Return Not Required

Revenue Procedure 2025-28 resolves this question. It allows eligible small taxpayers to:

• Deduct 2024 R&E expenditures on their originally filed 2024 returns, provided they also amend their 2022 and 2023 returns.
• File a superseded 2024 return by the extended due date, if they timely filed their original 2024 return.

This clarification significantly reduces the administrative burden on small businesses by eliminating the need to file an amended 2024 return.

Why This Matters

For eligible small businesses, this guidance:

• Simplifies compliance by reducing the number of amended returns required.
• Provides more certainty when planning around Section 174A expensing.
• Ensures that taxpayers can take advantage of R&D expensing relief sooner without being bogged down by unnecessary filings.

Next Steps

McGuire Sponsel will provide a detailed analysis of Revenue Procedure 2025-28 in the coming weeks. In the meantime, businesses that believe they may qualify should begin reviewing their 2022–2024 returns to assess the impact of this election.

If you have questions about how these rules apply to your business or your clients, please contact the McGuire Sponsel team.