When most people hear the term “R&D meaning,” they picture scientists in lab coats or billion-dollar tech companies building rocket ships. But research and development happens every day inside small businesses, most owners just don’t realize it

What is R&D in business? It could be a contractor testing a new building technique, a bakery experimenting with gluten-free recipes, a farm working on better irrigation, or a personal trainer developing a new rehab protocol. That’s all R&D. Starting in 2025, the tax benefits just got much more interesting.

Introducing Why Average Isn’t Enough

I believe high-earning individuals deserve more than basic tax compliance. That’s why I write Why Average Isn’t Enough every week.

In each column, I show you how the “average” approach to tax and finance can quietly drain your wealth, and what to do about it. You’ll get:

• Sharp insights revealing how reactive CPA work leaves money on the table
• Strategic stories that illustrate what proactive, value-driven guidance looks like in real life
• A fresh perspective to help you demand more from your financial team

Because when it comes to your financial future, average isn’t just not good enough, it’s expensive.

The Rule Change That Changed Everything for R&D in Business

With the passage of H.R. 1, The For the People Act (better known as the One Big Beautiful Bill Act) — in July 2025, you can fully deduct domestic R&D expenses in the year you pay or incur them. That means if you spend $100,000 developing or improving something, a product, a process or even your internal systems, you can knock that full amount off your taxable income right away.

It used to be that you had to spread it out over five years under the Tax Cuts and Jobs Act of 2017. Back then, most CPAs just followed the rule without thinking twice. Now you have a choice: take the whole deduction upfront or spread it out over time. The IRS won’t offer suggestions, but a strategic advisor will.

This is not a tax compliance move. It’s a planning move. You have flexibility, timing control and the ability to custom-fit the deduction to your income trajectory. You can even amortize over any number of months up to 60. Ten months, 18, 45, you decide. No other deduction gives you that level of precision.

Once you choose your method and amortization period, you’re locked in unless the IRS allows a change. That’s why this decision must be intentional. Get it wrong and you’re stuck.

“But I Had to Amortize in 2024″

Here’s a real-world scenario.

Maria runs a growing business. In 2024, she spent $400,000 on R&D. Her CPA followed the rules and amortized it over five years, so she only deducted $80,000 on her 2024 return.

Now that the law has changed, Maria has options. She can stay on the current schedule or, if she qualifies as a small business (average gross receipts under $30 million over the last three years), she may be able to amend her 2024 return and apply the new rule retroactively. That could generate a meaningful refund.

If she amends and pulls the deduction into 2023, she might face a 2024 tax bill when that amortized amount reverses. That bill may include interest.

There’s also a third path: deduct the remaining unamortized amount in 2025, or split it between 2025 and 2026. That’s a big swing in tax treatment and a perfect opportunity for strategic planning.

What is R&D in Business: Qualifying Activities and What Doesn’t Count

You don’t need a patent, a lab or a full-time R&D team. You just need to be trying something new.

Understanding R&D Meaning: What Qualifies

Research and development can include:

• Developing or improving products or processes
• Building custom software or apps
• Testing or prototyping new solutions
• Experimenting with different materials or formulas
• Tackling technical challenges with uncertain outcomes

Software development qualifies, including internal automation tools, custom CRMs and mobile apps.

What Usually Doesn’t Qualify for R&D

• Buying new equipment or land
• Marketing, branding or general research
• Routine data gathering or customer surveys
• Anything done outside the U.S. (foreign R&D still must be amortized over 15 years)

Knowing what is R&D in business is key. Many CPAs get it wrong, either underclaiming because they’re too conservative or overclaiming because they don’t understand the rules.

R&D Might Already Be in Your Business

You don’t need to be building the next AI tool. You just need to be improving something.

I’ve seen R&D in restaurants testing new recipes, construction firms refining techniques, retail brands improving customer service models, farms experimenting with organic methods and healthcare pros developing better protocols.

It’s not about your industry, it’s about intent. Are you trying something new, solving a problem or creating something better? If so, there may be research and development activities sitting in your general ledger right now.

A Real Example of R&D Planning Leverage

If you have $1 million in income and spend $250,000 on qualifying R&D this year, you can deduct the full amount under the new rules. Your taxable income drops to $750,000, saving you $75,000 or more in taxes.

If 2026 will be your breakout year, you might choose to spread the deduction so it hits when your income is higher. That’s real planning. You don’t just take what the IRS gives you, you choose what works best for your business.

What You Should Be Doing Now with R&D

1. Look at what you’re building or improving this year. If it’s new, better or experimental, it might qualify.
2. Start documenting. Keep notes, spreadsheets, estimates and timelines. You don’t need formal reports, just enough detail to back it up.
3. Ask your CPA for their plan. If the answer is vague or generic, that tells you everything. This deduction shows up in conversations months before the return is due.

Bottom line: Understanding what is R&D in business isn’t just for corporations with big labs. These rules are for business owners who are building, improving and innovating. This is a deduction you plan for, and most CPAs miss it because they focus on last year, not next year.

Final word: R&D credits and deductions are powerful tools. Without strategy, they’re just noise. The difference between an average CPA and a strategic CPA advisor is that the latter connects timing, structure and long-term goals to build leverage.

Your tax strategy should reflect your ambition. That’s why average isn’t enough.

Final Word: Don’t Just Write Off, Write Smart

R&D credits & deductions are powerful tools. Without strategy, it’s just noise. That’s the difference between an average CPA and a strategic CPA advisor.

Average CPAs check boxes for basic tax compliance. Strategic CPA advisors connect timing, structure, and long-term goals to build real leverage.

If your tax pro isn’t asking about your future, your exits, or your income mix, you’re not just behind. You’re exposed.

Your tax strategy should reflect your ambition.

That’s why average isn’t enough.

Written by Jose Ortiz, CPA, CTC

Jose is the founder of The Scale Collective and a strategic tax advisor to high-earning entrepreneurs and real estate investors. He helps clients design forward-thinking tax plans that align with their business goals, not just their past returns. If you’re building something and want to make sure your tax strategy keeps up, reach out or subscribe for more insights.

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Originally published on Substack.