NEWS | HR1 Advances Through Senate with Action for NSBA, Small Business Tax Priority Issues
- NSBA
- Jul 1, 2025
- 4 min read
Updated: Jan 14
NSBA applauds the Senate for passing HR1, the One Big Beautiful Bill Act, which includes action for NSBA’s top Priority Issues: permanency for the small-business tax rate and cut in the form of the 199A Qualified Business Income deduction.
UPDATE, JULY 03, 2025 | The House of Representatives passed a permanent restoration of the Sec. 174 domestic R&D Tax deduction as part of its omnibus tax bill, also known as the “Big Beautiful Bill”. This is the same legislation that was passed by the Senate earlier in the week through the reconciliation process, which also makes the fix retroactive (for most small businesses). The bill was signed by the President on July 4th.
Sec. 174 of the US Tax Code was originally changed in the 2017 Tax Cuts and Jobs Act, which , beginning in 2022, required companies to amortize its R&D expenses rather than immediately deduct them. This change affected any company that performs R&D work, but was particularly burdensome for high-tech small businesses, who often don’t have cash reserves to amortize these expenses over several years. This requirement created a heavy financial disincentive for small businesses to innovate, and SBTC has been urging Congress over the past few years to fix this provision and restore the immediate deduction for R&D expenses:
The restoration of Sec. 174 R&D immediate deduction represents a significant tax relief to high-tech R&D-focused small businesses, especially those that participate in the SBIR/STTR programs. SBTC applauds Congress for ensuring that this much-needed fix was included in the tax bill and done so permanently, which will reincentivize small business innovation and allow America’s small businesses to continue to help the US maintain its technological advantage over the world. Here are some facts about the relevant provision in the bill, Sec. 70302:
Allows immediate deduction of R&D expenditures performed domestically
Foreign R&D expenditures must still be amortized over 15 years
Development of Software can be treated as an R&D expense and deducted under Sec. 174
These changes go into effect for expenditures made or incurred in taxable years after December 31, 2024
For small businesses with average annual receipts under $31 million, they will be able to apply these changes retroactively to all R&D expenditures after December 31, 2021
Follow the links below to read the full text of the bill, and Section-by-Section Summary:
Summary text of the provision restoring Sec. 174 R&D Tax Expensing:
Sec. 70302. Full expensing of domestic research and experimental expenditures.
Current Law: Under current law, for taxable years beginning after December 31, 2021, taxpayers must capitalize and amortize specified research or experimental expenditures ratably over a five-year period (or, in the case of expenditures attributable to research that is conducted outside of the United States, over a 15-year period), beginning with the midpoint of the taxable year in which those costs are paid or incurred. Specified research or experimental expenditures are research or experimental expenditures paid or incurred in connection with a taxpayer’s trade or business
Provision: This provision allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024. Research or experimental expenditures attributable to research that is conducted outside the United States must continue to be capitalized and amortized over 15 years under Section 174.
Additionally, small business taxpayers with average annual gross receipts of $31 million or less will generally be permitted to apply this change retroactively to taxable years beginning after December 31, 2021. Furthermore, all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions for such expenditures over a one-year period or a two-year period.
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JULY 01, 2025 | Senate lawmakers voted on Tuesday to pass the One Big Beautiful Bill (H.R. 1) out of the chamber by a 51-50 margin, with Vice President JD Vance casting the tie-breaking vote.
The House Rules Committee will now consider the Senate’s bill on Wednesday in anticipation of sending it before House floor, where lawmakers will attempt to put a final version of the bill on the President's desk before the end of the week.
RELATED | NEWS | NSBA Joins Main Street in Support of HR1 for Small-Business tax provisions, NSBA Priority Issues
“NSBA applauds the Senate for passing H.R. 1, the One Big Beautiful Bill Act which includes NSBA’s #1 priority, permanency for the small-business tax rate cut in the form of the 199A Qualified Business Income deduction,” NSBA President and CEO Todd McCracken said. “Enacting this provision and several others—including reversing a very problematic change to the R&D tax deduction—is a major win for small business.”
“As our nation celebrates Independence Day, I urge the House to pass the language approved in the Senate and give America’s small businesses the freedom and independence they need and deserve to keep their businesses thriving,” McCracken went on to say.
Follow NSBA for updates on progress of this bill as it moves through the House, and contact your Members of Congress and urge them to support Main Street competitiveness today.
