Major 2025 R&D Tax Credit Update To IRS Form 6765

***This is an update to our blog below which was originally posted in July of 2024.

The R&D tax credit for 2025 has been significantly expanded, allowing businesses to fully deduct domestic R&D expenses in the year incurred, providing substantial tax savings and cash flow benefits.

Key Changes in 2025

1. Immediate Expensing: The One Big Beautiful Bill Act (OBBBA) reinstates the ability for busines to fully expense domestic R&D costs starting in 2025. This change reverses the previous requirement to amortize R&D expenses over five years, allowing companies to deduct these costs in the year   incurred. 
2. Expanded Eligibility: The updated guidelines broaden the definition of qualifying research activities, allowing more businesses across various industries—beyond just tech—to qualify for the R&D tax credit. Companies can receive 14-20% of their R&D expenses as dollar-for-dollar tax reductions against federal liability. 

1. Retroactive Relief for Small Businesses: Small businesses (with gross receipts under $31 million) can amend their tax returns for 2022-2024 to claim previously amortized R&D expenses. They can also choose to deduct remaining unamortized expenses in 2025 or spread them over 2025 and 2026. 

1. Cash Flow Improvement: By allowing immediate deductions, businesses can improve their cash flow, freeing up liquidity for operations and growth. This is particularly beneficial for startups and companies who are heavily invested in innovation. 

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Original Post:

The IRS has introduced significant changes to the R&D Tax Credit Form 6765, which will apply to tax years beginning in 2024. The new draft version of the form includes several revisions that will impact how businesses claim and substantiate their R&D tax credits.

One of the most notable changes is the addition of Section G, which requires businesses to provide detailed information about their research activities. This includes whether the business component is new or improved, if it is for sale, lease, or license, and a narrative describing what information is sought to be discovered. This new section will be optional for:

Qualified start-up businesses electing the payroll offset under I.R.C. § 41(h)(1) & (2); and
Taxpayers with total annual Qualified Research Expenditures (QREs) of $1.5M or less and $50M or less in annual revenue,
The new draft Form 6765 also includes several other new sections, such as sections E and F, which request additional information about the research activities and the business's operations.

These changes represent some of the most significant revisions to the R&D tax credit program since its inception in 1981. Businesses and tax professionals should stay informed about these developments and be prepared to adapt to the new requirements when claiming R&D tax credits for the 2024 tax year and beyond.

The new draft Form 6765 can be found at https://www.irs.gov/pub/irs-dft/f6765--dft.pdf.