Section 174 and 174A for Startups in 2026: R&D Expensing Is Back
Written by Aparna Devalla
Curated by Rubric Financial
Last updated
1 / 5
Section 174 in 2026: The Short Answer
- For tax years beginning after December 31, 2024, new Section 174A (added by the One Big Beautiful Bill Act, signed July 4, 2025) lets startups deduct domestic research and experimental costs, including US software development, in the year they are paid or incurred.
- Foreign research costs stay under Section 174 and must still be capitalized and amortized over 15 years, so where engineers sit still changes your tax bill.
- Domestic amounts you capitalized in 2022-2024 can be deducted in full on the 2025 return or split evenly across 2025 and 2026 (Rev. Proc. 2025-28), or you can keep amortizing them.
- Taking the R&D credit now reduces the Section 174A deduction by the credit amount, unless you elect the reduced credit under Section 280C(c), which claims 79% of the credit and keeps the full deduction. Ask your CPA to model both for your profile.
Related Resources
The Income Tax Provision Under ASC 740
An overview of the ASC 740 income tax provision, covering deferred tax assets and liabilities, valuation allowances, and why unprofitable startups still record a provision.
Tax & ComplianceQualified Small Business Stock (QSBS)
How Section 1202 allows startup shareholders to exclude millions in capital gains from federal tax, how the 2025 OBBBA changed the rules, and what your company must do to qualify.
Tax & ComplianceSection 754 Election: Step-Up Basis for Partnerships (and Why S-Corps Can't)
The §754 election is the mechanism that lets partnerships and LLCs step up the inside basis of their assets when a partner dies, transfers their interest, or takes a distribution. S-corps have no equivalent, a real cost founders often discover too late.
About the author
Aparna DevallaCPAHead of Tax & Accounting
CPA and Head of Tax & Accounting at StartupCFO. Specializes in multi-state tax compliance, R&D credits, and GAAP-compliant books for venture-backed startups.
More articles by Aparna →Related tools and reading
What a fractional CFO costs
2026 pricing: hourly rates, monthly retainers, and what drives the number.
Free toolFractional CFO Cost Calculator
What a fractional CFO costs at your stage, against published 2026 prices.
InsightAustin Startup Tax Deadlines 2027: Texas Franchise Tax Calendar
Texas has no personal or corporate income tax, but Austin startup taxes are not zero. Here is the 2027 calendar for founders: the May franchise tax report, the Public Information Report, sales tax on SaaS, the new refundable R&D credit, Travis County property renditions, and the federal and Delaware dates layered on top.
GlossaryCAC Payback
Number of months to recover CAC from gross profit.
ServiceTax resolution for startups
IRS and state notices, penalty abatement and payment plans, with an Enrolled Agent.
Free toolUnit Economics Calculator
Model CAC, LTV, payback period, and contribution margin.
Want a CPA to own this?
Deadlines tracked, estimates filed, and multi-state compliance handled across all 50 states, with expert sign-off.
No spam, ever. If the download doesn't start, email us.
Or talk it through:
