Trump’s 2025 Tax Plan: What’s Next for the R&D Credit

Introduction

The upcoming Trump 2025 Tax Plan is expected to make major adjustments to U.S. corporate tax policy, including reforms that could directly impact the R&D Tax Credit under IRC §41.
While many details will depend on final legislative approval, early outlines of the plan suggest potential expansion of R&D incentives, extended bonus depreciation, and a possible return to full expensing of research costs under IRC §174.
This guide explains how the proposed Trump R&D Credit Plan could reshape tax benefits for innovators and technology-driven businesses in 2025.

Relevant Tax Codes and Forms

• IRC §41: Credit for Increasing Research Activities.
• IRC §174: Research and Experimental Expenditures (capitalization vs. expensing).
• IRC §280C(c): Election for reduced credit.
• Form 6765: Credit computation for R&D.
• Form 3800: Consolidation of General Business Credits.

Step 1: Current Law under IRC §174 and §41

Under the current rules, effective since 2022, taxpayers must capitalize and amortize research expenses over five years (15 years for foreign research) as required by the Tax Cuts and Jobs Act (TCJA).
This change limited immediate deductions for companies heavily investing in research and increased their taxable income in early years.

At the same time, IRC §41 continues to offer a tax credit for qualified research expenses (QREs) such as wages, supplies, and contract research costs.

Example:
A software company spending $1 million on qualified R&D in 2025 may still claim a $100,000 R&D credit, but it can only deduct $200,000 of those costs in the same year due to §174 amortization.

Step 2: Trump’s 2025 Proposal for R&D and Innovation

Early outlines of the Trump 2025 Tax Plan include the following measures:

1. Full Expensing of R&D Costs:
   Restore immediate expensing of R&D expenditures under IRC §174, removing the 5-year amortization rule.
2. Expansion of R&D Tax Credits:
   Increase the R&D credit rate or introduce higher incentives for domestic manufacturing, artificial intelligence, and technology R&D.
3. Reinstatement of Bonus Depreciation:
   Reinstate 100% bonus depreciation for new equipment and research property.
4. Simplification for Small Businesses:
   Simplify R&D credit documentation for startups and allow expanded payroll credit offsets.

If enacted, these changes would significantly boost the cash flow impact of R&D investments for both startups and established corporations.

Step 3: Impact on Research-Based Businesses

Positive Impacts Expected:

• Immediate write-offs under §174 could lower taxable income and improve cash flow.
• Higher R&D credit rates may benefit technology, biotech, and engineering sectors.
• Enhanced domestic manufacturing incentives could favor companies conducting U.S.-based R&D.
• Streamlined R&D documentation rules could reduce administrative burden.

Example:
Under the proposed expensing rule, a company with $2 million in U.S.-based R&D could both deduct the full $2 million in 2025 and still claim a 10 to 20 percent R&D credit, generating significant combined tax savings.

Step 4: Possible Limitations or Phaseouts

While expansion of R&D benefits is expected, policymakers may consider limits on:

• Foreign research activities to encourage domestic innovation.
• High-income phaseouts for closely held corporations.
• Adjustments to §280C(c) to control double deductions.
• Broader budget offsets to maintain revenue neutrality.

Taxpayers should monitor the legislation’s final language to ensure their 2025 and 2026 R&D planning remains compliant and optimized.

Step 5: Strategic Actions for 2025 Tax Planning

1. Review Ongoing R&D Projects: Identify all eligible QREs early in the year.
2. Track §174 Expenses: Continue amortization under current law until new legislation takes effect.
3. Model Cash Flow Scenarios: Estimate the impact of potential full expensing and increased R&D rates.
4. Prepare Documentation: Maintain detailed payroll, contracts, and project reports under Treas. Reg. §1.41-4.
5. Consult a CPA: Stay ready to adjust compliance filings quickly once the new law is confirmed.

Step 6: Example of the Potential 2025 Change

Scenario:
A biotech firm spends $3 million in research costs.

• Under current law: Must amortize $3 million over 5 years, claiming only $600,000 deduction in 2025.
• Under proposed Trump plan: Full $3 million deduction in 2025 + R&D credit (approx. $300,000).

Net Benefit Increase: Over $200,000 in year-one cash flow improvement.

Conclusion

The Trump R&D Credit Plan for 2025 aims to strengthen the United States as a global innovation leader.
By restoring full R&D expensing, expanding credit benefits, and simplifying compliance for startups, these reforms could make R&D investment more rewarding than ever before.
Businesses should plan proactively, track eligible expenses, and be ready to adjust their filings as legislative updates are finalized.

Call to Action

For professional assistance analyzing how the Trump R&D Credit Plan could impact your business in 2025, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting American and Indian businesses with R&D compliance and tax planning.

Disclaimer

This article is for informational purposes only and does not constitute legal or tax advice. Taxpayers should consult a CPA before making any filing or tax election based on proposed legislation.

Top 5 FAQs

1. What R&D changes are expected under Trump’s 2025 plan?
   Restoring full expensing of R&D costs and increasing R&D credit benefits for U.S. companies.
2. Does the plan affect current §174 amortization rules?
   Yes, it may eliminate the 5-year amortization requirement and restore immediate deductions.
3. Will the R&D credit rate increase?
   Possibly. Lawmakers are discussing rate increases for U.S.-based innovation sectors.
4. Can startups benefit from the Trump R&D Credit Plan?
   Yes, through simplified reporting and expanded payroll offsets under §41(h).
5. When will these changes take effect?
   If enacted, changes could apply to tax years beginning in 2025.

About Our CPA

Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent admitted to practice before the IRS, and a cross-border tax expert representing American and Indian businesses in R&D credits, audits, and IRS compliance.