How Should Companies Plan for R&D Tax Credits Before the July 2026 Retroactive Expensing Deadline?

• Short answer: Companies performing qualified U.S.-based R&D activities in 2022 through 2024 may be able to fully expense those costs retroactively based on the recent legislation changes from OBBBA (Rev. Proc. 2025-28), but only if action is taken before the July 6, 2026 deadline.
  
• Why it matters: Missing this deadline can mean losing large cash refunds or permanent deductions that directly affect  the company’s tax liability and cash flow.
  
• Who this applies to: Startups, growth-stage companies, and CFOs managing R&D-heavy departments that were negatively impacted by Section 174 amortization.

This article explains the retroactive R&D expensing rules and how finance departments should plan for the cash impact before the deadline arrives.

What Is the Retroactive R&D Expensing Opportunity?

For several years, companies were required to amortize domestic R&D costs over five years under Section 174. That rule reduced the tax payer’s current year deductions and in most cases increased taxable income, even for companies still investing heavily in innovation.

Recent legislation from OBBBA restored the ability for many companies to fully expense domestic R&D costs. Importantly, it also created a retroactive opportunity to fix prior years.

Companies that qualify may be able to adjust how R&D costs were treated in 2022, 2023, and 2024. This can unlock refunds, reduce future tax liabilities, or both.

Updated as of July 2025.

Who Is Eligible to Take Advantage of the Retroactive Expensing?

Eligibility generally depends on company size and where the research was performed.

Qualifications include:

• Companies with gross receipts under the applicable small business thresholds:
  
  • Average gross annual receipts for the 3 prior taxable years of $25,000,000 or less (adjusted for inflation); 
  • For tax year 2025, the inflation-adjusted amount is $31,000,000;
• Companies that performed domestic research activities; and
• Companies that previously amortized R&D costs under Section 174.

Foreign R&D costs are still required to be amortized and are not eligible for retroactive expensing.

Why Is This Opportunity Commonly Missed?

Many taxpayers assume their CPA will handle this or the opportunity will automatically be applied to their tax returns.

The top common reasons companies miss out include:

• Assuming previous amortization of R&D costs cannot be changed once filed;
• Waiting until filing season to revisit prior returns;
• Not realizing a deadline applies to retroactively expensing R&D costs; and
• Treating R&D credits and R&D expenses as separate decisions.

The reality is that timing and elections matter, and they must be handled intentionally.

R&D Credit Eligibility and Retroactive Options

How Does R&D Credit Eligibility Work?

The R&D credit applies to companies that develop, enhance or improve products, software, processes, or technologies through technical experimentation.

Qualified activities often include:

• Software and platform development;
• Engineering and product design;
• Process improvement and automation; and
• Iterative testing and technical problem solving.

R&D Credits are typically calculated based on qualified wages, US-based contractor costs, and certain supplies tied to those activities.

What Retroactive Options Are Available?

Companies generally have two primary paths to address prior amortized R&D expenses.

• Catch-up deduction approach: This adjusts how remaining unamortized R&D costs are deducted going forward.
• Amended return approach: This revises prior year filings to fully expense eligible R&D costs and may result in cash refunds.

Each option has different cash flow, compliance, and timing implications.

Why the July 6, 2026 Deadline Matters?

• The retroactive expensing opportunity is not open-ended.
• Action must be taken by July 6, 2026 to preserve eligibility for prior years. After that date, companies may be locked into amortization permanently.
• This deadline affects both amended returns and certain elections, making early planning critical.

How Companies Should Plan for the Cash Impact

Understanding eligibility is only half the equation. The other half is planning for how the credit or deduction will affect your financial position. The Kordis CFO team specializes in planning for cash influxes such as these. 

Model the Impact Before It Arrives

Many companies treat R&D credits as a windfall when the cash hits. A better approach is modeling the expected benefit into your forecast now, even if the exact amount is still being calculated.

This means:

• Estimating the potential credit or deduction range based on qualifying spend
• Identifying when the cash or tax benefit will materialize (amended returns take longer than catch-up deductions)
• Building scenarios into your forecast so you can make decisions with confidence rather than reacting after the fact

At Kordis, we've taken our own advice. As a software company with qualifying R&D activity, we've already projected the expected benefit into our 2026 forecasts. It changes how we think about hiring timelines and product investment for the year.

Timing Considerations

The path you choose affects when you see the benefit:

• Catch-up deductions reduce taxable income in the current or future periods but may not generate immediate cash
• Amended returns can produce refunds, but IRS processing times vary and can stretch several months

For companies managing tight runway, the timing distinction matters as much as the dollar amount.

Reinvestment Framework

Once you have clarity on the expected benefit, the next question is what to do with it. Common approaches include:

• Extending runway: Treating the credit as a buffer rather than new spending capacity
• Accelerating hiring: Using the cash to fund headcount that was previously deferred
• Funding additional R&D: Reinvesting in product development, which may generate future credits

The right answer depends on your stage, burn rate, and strategic priorities. The wrong answer is not having a plan at all.

"Most founders treat R&D credits as a bonus when they arrive. The smarter move is modeling them into your forecast now so you can make hiring and investment decisions with confidence, not just react when the cash hits." — Devin O'Brien, CEO, Kordis

Practical Takeaways

The biggest risk with retroactive R&D expensing is not eligibility. It is waiting too long to plan. Tax Payers that evaluate their options early and model the financial impact tend to capture the full benefit. 

Firms that specialize in R&D tax incentives, such as TaxTaker, and financial planning partners like Kordis often see this issue arise when companies revisit prior years under time pressure.

Frequently Asked Questions

Can companies still amend 2022 and 2023 returns?
In many cases, yes, but deadlines and eligibility rules apply.

Does retroactive R&D expensing affect the R&D tax credits?
The two interact and should be evaluated together to avoid unintended outcomes.

Do startups benefit if they are not profitable?
Yes. Benefits may come through payroll tax offsets or future deductions rather than immediate income tax refunds.

Final Thoughts

The July 6, 2026 deadline makes R&D tax planning a near-term financial decision, not a distant tax exercise.

If this applies to your company, it is worth evaluating sooner rather than later while options are still available.