OBBB Act and Section 174: To Amend or Not to Amend

ARTICLE | August 27, 2025

Summary: The One Big Beautiful Bill (OBBB) Act returned immediate deductions of domestic R&D costs, and it also gave small businesses an important new choice: to amend and apply those deductions retroactively, or not to amend.

When the OBBB Act created Section 174A to make domestic R&D costs immediately deductible once again, it also created a new “transition rule” that allows eligible small businesses to amend their 2022-2024 tax returns to deduct domestic R&D costs retroactively. This new rule left businesses with a big decision: to amend or not to amend. While many assume amending is the obvious choice, taking a holistic tax planning approach reveals this decision may be more complex than it seems.

Eligibility and Timing for Amended Returns

The opportunity to amend is exclusively available to small business taxpayers with average annual gross receipts under $31M for the three tax years preceding 2025. Businesses that meet this requirement can file amended returns for the tax years 2022, 2023, and 2024. However, businesses that do decide to amend must file all amended returns before July 4, 2026.

The alternatives to amending prior year returns include:

1. Accelerating the deduction of all remaining unamortized amounts from the 2022-2024 tax years over the next one or two years
2. Continuing to amortize the 2022 – 2024 costs without accelerating

When Deciding Whether or Not to Amend, It’s All About Context

On the surface, amending sounds like a great option to help small businesses bounce back more quickly. Many tax advisors jumped on this opportunity by recommending all eligible businesses file these returns as quickly as possible. However, amending those returns may have unintended consequences that could make it a less advantageous strategy in some situations. When you take your whole tax return into consideration, amending might be the most beneficial option – but not always.

Here’s five questions we’re asking our clients as they weigh their options:

1. When Do You Actually Need the Cash?

If you’re not in a rush for cash, amending might make sense. But if you do choose to amend, it’s important to remember there is no guarantee when those refunds will be issued. It can sometimes take months, or even years, to see those funds. However, businesses looking for more immediate relief might get more value out of not amending. Choosing the alternative option of accelerating your remaining unamortized amounts in the 2025 tax year could allow you to immediately reduce your Q3 and Q4 estimated tax payments. While it’s not a refund, it does mean you get to keep that cash in your business now.

2. Would Amending Create or Increase Your Net Operating Losses (NOLs)?

If you paid tax in 2022 – 2024, it will be important to do some revenue forecasting to assess what impact amending could have on your company’s taxable position for those years. Some special deductions, like the Qualified Business Income (QBI) deduction and some international provisions, are only available when you have taxable income. So, if you benefited from any of those special deductions because you had taxable income, and amending would flip your business into a loss position, then amending would cause those special deductions to disappear permanently. Alternatively, opting not to amend and instead accelerating your unamortized R&D costs in future periods would preserve those deductions.

3. Did You Buy, Sell, or Raise Capital for Your Business in the Last 3 Years?

If so, it may have triggered what’s called an “ownership change,” which is a rule that may limit how much NOL you can use each tax period. Any additional NOLs created by amending as well as previously used NOLs could be subject to these rules, limiting the amount of NOLs available to use for those years. But, if your business hasn’t had any recent changes in ownership that would trigger loss limitations, amending could be a viable route, just remember the 80% limitation on losses generated after 2017.

If you have pre-2018 NOLs that were utilized during 2022 – 2024 that may otherwise have expired, amending and freeing up those losses would not extend their original expiration period. Instead, it could erase that benefit permanently.

4. Have You Discovered Additional Costs That May Qualify for the R&D Credit?

If your business has qualifying Section 174A costs, then it’s very likely you have costs that are eligible for the R&D credit, too. It’s a common misconception that the R&D credit is only available for brand new inventions or highly scientific lab work. In reality, any company that designs, develops or improves products, processes, techniques, formulas or software may be eligible.

If you missed claiming the R&D credit between 2022 and 2024 but have discovered additional costs that may be eligible, you could retroactively deduct those 174 costs and claim the R&D credit for those years, which could significantly boost your cashflow. Just keep in mind, there’s some extra paperwork involved if the R&D credit increases the amount of your refund due to new requirements for R&D credit refund claims.

5. Will amending definitely put more cash in your pocket?

If you’ve modeled all the above scenarios and it shows that amending will result in beneficial increased cashflow, then amending is a great option. The OBBB Act created this opportunity specifically to help small businesses bounce back faster, so businesses just need to find the strategy that’s most advantageous for their unique fact pattern. That’s why it’s important to work with a tax advisor who knows your business and can approach tax planning with you from a holistic perspective.

Final thoughts: Amending Under the OBBB Act to Deduct 174 Costs Shouldn’t be an Automatic ‘Yes’

The new opportunity for eligible businesses to retroactively deduct domestic 174 costs will be hugely beneficial for some but could create needless complications (or even disadvantages) for others. Don’t make the decision to amend in a vacuum; instead, look at the whole picture, including potential impacts to your business’s cashflow needs, taxable position, and previous strategies. Make sure you’re working with advisors who have experience with tax planning, Section 174 compliance, and R&D tax credit eligibility. So to answer the question, “To amend or not to amend?” the answer is, “It depends!”

Please connect with your advisor if you have any questions about this article.

This article was written by Aprio and originally appeared on 2025-08-27. Reprinted with permission from Aprio LLP.
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