Manufacturing Small Business Election

Manufacturing Small Business Election

Client Profile

The client is a U.S.-based manufacturing company with ongoing research and development activities supporting product and process improvements. The company had an established history of claiming the R&D tax credit and had been amortizing Section 174 research expenditures for tax years 2022 through 2024.

As they approached the 2025 tax year, the client contacted our team to help with their current-year credit and to evaluate available Section 174 treatment options in coordination with their CPA. The process was driven in part by the approaching statute deadline for the 2022 tax year and the need to confirm that previous and current elections aligned with the company’s broader tax position.

Process

Our R&D team worked alongside the client and their CPA to review the company’s historical treatment of research expenditures and evaluate available elections under Section 174, including the small business election and the accelerated deduction option permitted under the OBBBA.

During the analysis, our team identified that the company was planning to take bonus depreciation on certain assets in 2025. Based on this broader tax position, we evaluated how different Section 174 elections would interact with those deductions and whether an accelerated treatment would provide a net benefit.

Our team outlined the implications of each available option, including timing of deductions, impact on taxable income, and interaction with other tax attributes. We worked closely with the client and their CPA to model outcomes and ensure alignment with their overall tax strategy.

Given the March 15 statute deadline for the 2022 tax year, our team also prioritized timely analysis and decision-making. This ensured the appropriate small business election could be made before the filing window closed.

Results

Through the evaluation and coordination process, the client chose to apply the small business election under Section 174 rather than an accelerated deduction approach.

This resulted in:

• More than $2 million in additional deductions across applicable tax years
• Generation of tax refunds exceeding $500,000
• Alignment of Section 174 deductions with the company’s use of bonus depreciation in 2025
• Timely filing of elections prior to the March 15 statute deadline for the 2022 tax year

The engagement provided clarity around Section 174 options. This ensured the client’s tax position was consistent, compliant, and aligned with their broader financial strategy.