European businesses with U.S. operations or global clients should take note: President Trump has signed the "One Big Beautiful Bill" into law, reinstating a major tax advantage for U.S.-based research and development activities. As of 1 January 2025, companies may once again immediately deduct domestic R&D expenses, reversing the amortisation requirements introduced in 2022.
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Previously, U.S. legislation required businesses to capitalise and amortise R&D costs, over five years for domestic expenses and fifteen years for international ones. This change had widely been viewed as a disincentive to innovation. The new law permanently restores immediate deductibility for U.S.-based R&D, while maintaining the 15-year amortisation for foreign-incurred costs.
'The restoration of immediate deductibility for domestic R&D expenses is undoubtedly a huge win for businesses,' notes U.S. tax advisory firm Smith Leonard PLLC. They add: 'Taxpayers once again enjoy the best of both worlds… the ability to immediately deduct the costs as well as potentially generate a tax credit to further reduce tax liability.'
Importantly, the law gives companies several transition options for dealing with previously capitalised R&D expenses that have not yet been fully amortised:
- Continue amortising over the original 5-year schedule
- Immediately deduct the remaining amount in the first tax year after 2024
- Spread the deduction evenly over the first two tax years after 2024
- Eligible small businesses (with less than $31 million in average gross receipts) may amend prior returns from 2022–2024 to expense R&D costs retroactively
These options provide flexibility but also create complexity. Smith Leonard advises companies to model potential scenarios carefully. 'The law offers options… and any adjustments can impact a taxpayer's interest expense limitation, net operating loss usage, and other tax attributes,' the firm warns.
For European businesses operating in the U.S., or supplying clients who do, this development may reignite investment in innovation-heavy sectors such as design, technology, and manufacturing. InteriorDaily.com readers in the lifestyle, materials, and design industries may benefit from tracking how their U.S. partners respond to these favourable changes.
Businesses are encouraged to consult their tax advisors to assess how best to proceed under the new framework. Smith Leonard is available for guidance at: contactus@smith-leonard.com.
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