Life Sciences Gain R&D Tax Relief Under OBBB

Life sciences companies face some of the highest costs and longest timelines for research and development. The One Big Beautiful Bill (OBBB) Act, with the newly released IRS Revenue Procedure 2025-28, eases some of the tax complexity around these expenditures. Starting with tax years after December 31, 2024, domestic research and development expenses may be deducted immediately, replacing the prior five-year capitalization and amortization requirement. These updates reduce taxable income and create opportunities to revisit past R&D claims. The change is especially favorable for smaller biotechnology, pharmaceutical, and medical device companies with less than or equal to $31 million in average gross receipts. Research and development conducted outside of the United States, however, must continue to be capitalized and amortized over 15 years.

What Has Changed for Research Costs

OBBBA created a new code section 174A that governs domestic research and experimental expenditures. Under section 174A, taxpayers may now fully expense domestic R&D costs in the year they are paid or incurred for tax years beginning after December 31, 2024. For life sciences companies, this shift means greater flexibility to invest in pre-clinical studies, clinical trials, and product development while recovering costs more quickly.

Small businesses with annual gross receipts of $31 million or less may now accelerate deductions for prior-year expenses or amend returns to claim missed deductions for 2022, 2023, and 2024, which may lead to refunds. Costs that were capitalized under the earlier/2017 Tax Cuts and Jobs Act (TCJA) rules for the past three years and not yet amortized may be recovered more quickly, either fully in 2025 or spread over 2025-2026. This change provides an important cash flow benefit for early-stage biotechnology and medical technology firms balancing research pipelines with limited funding sources.

Options for Life Science Organizations

Life sciences companies have several approaches to consider depending on their structure, size, and stage of development:

• Amending previous returns to claim deductions for prior years.
• Deducting the remaining unamortized domestic R&D expenses in 2025.
• Spreading the remaining unamortized domestic R&D expenses over 2025 and 2026.
• Continuing to amortize domestic R&D expenses over their remaining life.
• Making an election under Section 59(e) to capitalize expenditures and amortize over 10 years.

Each option has implications for taxable income, cash flow, and potential R&D tax credits. Selecting the most appropriate path depends on company size, prior-year R&D activity, and overall tax strategy.

Strategic evaluation of these options may also increase the likelihood of claiming missed research and development tax credits under Section 41. For many life sciences companies, this includes reviewing the implications in claiming the full credit vs. making an election under IRC 280C to claim a reduced amount.

In addition, guidance on procedures for making elections, method changes, and filing amended returns is now available thanks to newly issued Revenue Procedures 2025-28. Timing is important for some nuances involved. While OBBB changes create opportunities, they also require careful analysis. Life sciences companies should work with their AAFCPAs tax advisor to determine which deduction strategy aligns with their financial and operational goals. Each company’s circumstances differ, and an informed approach can help optimize deductions and potential tax credits while ensuring compliance with current rules.

How We Help

AAFCPAs provides comprehensive business tax solutions tailored to the needs of life sciences companies. For organizations navigating changes to research and development expenditures, we evaluate each option—including accelerated deductions, amended returns, continued amortization, or Section 59(e) elections—to determine the approach best suited to your business and financial goals.

Our tax planning considers federal, state, local, and multinational requirements, R&D credits, and historical activity to ensure accurate filings and optimize financial resources. We collaborate with finance teams, scientists, and investors to align deductions, credits, and broader tax strategies, helping life sciences companies preserve cash, support ongoing innovation, and remain in compliance with evolving regulations. For start-ups operating lean, we offer outsourced accounting and fractional CFO services—staffed by professionals ranging from staff accountants to CFOs, all with expertise in the life sciences sector.

These insights were contributed by Bella Amigud, CPA, MST, Tax Partner.

Questions? Reach out to our author directly or your AAFCPAs partner.

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