How to Navigate the July 6 §174A Deadline

With the July 6, 2026, deadline quickly approaching, CPA firms must make strategic decisions regarding §174A, which allows certain small businesses to retroactively deduct (instead of amortize over several years) domestic research and development (R&D) costs on their taxes for tax years 2022–2024. After years of amortization requirements that spread expenses over several years, the change creates both an opportunity and new complexities.

“The choice isn’t simply ‘amend or don’t amend.’ Timing, elections, and documentation all matter.” – David Sebel, Let’s Talk Tax

Continued Favorable Treatment of R&E Expenditures

In addition, California will maintain its conformity to the version of the federal tax code in effect on January 1, 2015, for purposes of determining deductible R&E expenditures. This means taxpayers can continue to expense both domestic and foreign research costs for California purposes.

This treatment differs from the One Big Beautiful Bill Act (OBBBA) at the federal level, under which only domestic research expenses are deductible, while foreign research costs must be amortized over 15 years.

Why the Deadline Matters

The July 6 deadline applies specifically to the small business election under §174A. Eligible small businesses—those with average gross receipts under $31 million—can choose to amend prior returns or accelerate deductions. But firms must remember: this election does not override standard statute deadlines, so decisions must align with other filing obligations.

Key options include:

• Amending 2022–2024 returns to claim immediate expensing
• Accelerating deductions into 2025
• Spreading deductions across 2025–2026
• Continuing existing amortization schedules while evaluating other credit opportunities

Each option affects taxable income, §280C elections, and R&D documentation. That’s why it’s important to choose carefully.

Lessons from Real Clients

Our recent work shows that results can vary a lot depending on each client’s circumstances:

Manufacturing Client

A U.S. manufacturer amortized §174 costs (2022–2024), planned 2025 bonus depreciation, and, after weighing the small business election against accelerated deductions, chose to amend prior years, leading to:

• Over $2M in additional deductions
• $500K+ in tax refunds
• Alignment of §174 deductions with broader tax strategy

Read the full case study here.

Software Company

A Kentucky-based software company had not previously evaluated R&D credit eligibility. Our team:

• Assessed activities under the four-part test
• Quantified qualified research expenses (QREs) across 2022–2025
• Assisted with amended filings and §280C election statements

This engagement generated $200K in federal R&D tax credits. It also positioned the client to keep claiming credits in 2026 and beyond. Read the full case study here.

Engineering Services Firm

A professional services firm had unclaimed R&D credits and had not addressed §174 capitalization rules. Our R&D Tax Specialists at McGuire Sponsel:

• Identified eligible QREs and prepared technical documentation
• Assisted with amended returns and §174A compliance statements
• Implemented process improvements for future claims

Results included over $560K in credits and improved compliance readiness for evolving IRS requirements. Read the full case study here.

“Even after July 6, firms can prepare for updated reporting and evaluate future §174A and R&D credit strategies.”

Planning Considerations for CPA Firms

Here are several reasons why planning ahead is important:

1. Statute Dates: §174A elections do not extend standard statute deadlines. Firms may need to act sooner to ensure compliance.
2. Documentation Requirements: IRS now requires detailed project-level reporting, personnel allocations, and evidence of qualifying research activities.
3. Interactions with Other Tax Positions: Bonus depreciation, §280C elections, and current-year elections all influence optimal deduction timing.
4. Strategic Impact: Beyond immediate tax savings, §174A planning affects long-term R&D credit strategy, documentation, and compliance for future years.

By reviewing each client’s activities and tax situation, CPA firms can provide guidance on elections, assess the benefits, and ensure proper compliance.

Working with an R&D Specialist

CPA firms may benefit from partnering with R&D tax specialists at McGuire Sponsel to:

• Evaluate client eligibility and identify qualified R&D activities
• Quantify deductions and credits across multiple tax years
• Prepare supporting documentation, election statements, and amended filings
• Align §174A decisions with broader tax strategies

Even if clients miss the July 6 small business election, specialists can help prepare for updated reporting requirements and future-year R&D strategies.

“The key takeaway: §174A planning isn’t about rushing—it’s about making informed, strategic decisions for each client.”

Act Before July 6

Decisions about §174A can affect millions of dollars in deductions, cash flow, and compliance. Waiting too long may limit your clients’ options or create unnecessary risk.

CPA firms should act now to:

• Review client-specific scenarios
• Quantify potential outcomes
• Implement compliant filings before the July 6 deadline

A deliberate, consultative approach ensures clients maximize deductions, optimize R&D credits, and maintain robust documentation.

Get in touch with us today to discuss §174A options and meet the July 6 deadline. Act now to maximize cash flow and secure your clients’ tax benefits.