Two Big Beautiful Tax Breaks for Startups
The Latest Startups Need to Know Re: OBBB
The newly enacted One Big Beautiful Bill (OBBB) includes two major wins for startups on the tax front.
1. R&D Capitalization Rollback (Finally)
Since 2022, startups have been required to capitalize and amortize R&D expenses rather than deduct them in full. That meant:
- $1M in domestic R&D = amortized over 5 years ($200K/year)
- $600K in foreign R&D = amortized over 15 years ($40K/year)
This approach often resulted in taxable income, even for startups still operating at a book loss and burning cash—widely seen as a poor tax policy that discouraged innovation. The OBBB repeals this requirement for domestic R&D expenses starting January 1, 2025. Even better, it allows startups to retroactively apply the new rule to earlier years by filing amended returns. What this means:
- Potential refunds for taxes paid on previously capitalized R&D expenses
- Adjustments to 2025 estimated tax payments
- Strategic opportunities for amended filings
We’re currently awaiting IRS guidance. We’ll review all applicable returns to determine whether amended filings make sense. There’s also speculation that the IRS may exempt 2024 returns from R&D capitalization, so for now, we’re continuing to prepare them but may delay eFiling if taxes are owed—pending that guidance.
2. Enhanced QSBS Exclusion
Previously, founders who held qualified small business stock (QSBS) for 5+ years could exclude up to $10M in capital gains (as long as the stock was sold in a qualifying transaction—note: asset purchases do not count). Under the OBBB, those benefits expand increasing the capital gain exclusion from $10M to $15M as well as providing shorter holding periods. Note: this only applies to stock issued after July 4, 2025.
| Holding period | Capital Gain Exlcusion |
|---|---|
| 3 years | 50% |
| 4 years | 75% |
| 5+ years | 100% (Up to $15M) |
This is a big deal for early-stage companies and founders planning their exits. More flexibility. More upside. Still tax-friendly.
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