Since 1954, Setion 174 of the federal tax code allowed businesses to deduct qualified research expenses in the year those costs were incurred. Congress created the related R&D tax credit in 1981.
These long-standing rules provided for a current tax benefits that matched up with current expenditures. This structure helped existing and startup businesses see immediate tax benefits for funds spent on innovation.
As part of the Tax Cuts and Jobs Act of 2017, Congress changed how taxpayers write off R&D expenses. Startinng on January 1, 2022, firms could no longer write off R&D expenses in the year they were incurred and now must amortize those expenses over five years in most cases.