Section 174A and the R&D Tax Credit: What Ohio Businesses Need to Know in 2026

For tax years beginning after December 31, 2024, Section 174A generally allows taxpayers to currently deduct domestic research or experimental expenditures. For Ohio businesses performing technical development work, that change makes it especially important to understand how research-expense treatment interacts with the separate Section 41 R&D Tax Credit.

The key distinction: Section 174A addresses how domestic research expenses are deducted or capitalized. Section 41 determines whether qualifying research expenses generate an R&D Tax Credit. The two provisions can apply to related activities, but they are not interchangeable.

Since 2004, RCG Tax Partners has completed more than 25,000 R&D tax credit studies and identified over $750 million in tax savings. Its team includes CPAs, tax specialists, engineers, technical writers, and architects who support federal and state R&D Tax Credit studies with detailed, documentation-focused analysis.

What Changed for Domestic R&D Expenses?  

Under the rules that applied to tax years beginning from 2022 through 2024, domestic research expenditures generally had to be capitalized and amortized rather than deducted immediately.

Section 174A changed that treatment for tax years beginning after December 31, 2024. Domestic research or experimental expenditures may generally be deducted currently. A taxpayer may instead elect to capitalize and amortize those expenditures over a period of at least 60 months. Domestic software development expenditures are also included within the new framework.



For businesses budgeting engineering, product development, software, testing, or process-improvement activity in 2026, this can materially change how research costs are treated for federal income tax purposes.

Section 174A vs. Section 41  

A useful way to separate the two is to ask two different questions.

A business may incur domestic research expenses under Section 174A without every dollar becoming a qualified research expense for Section 41.

Why Section 174A Does Not Automatically Create an R&D Credit  

Section 41 applies its own qualified-research requirements.

A project generally needs to involve a qualifying business component, rely on technological principles, address technical uncertainty, and include a process of experimentation related to function, performance, reliability, or quality.

That means a company should not assume that an accounting category labeled “R&D” automatically supports an R&D Tax Credit.



For example, an Ohio manufacturer may deduct certain domestic development costs under Section 174A while only part of that activity meets the separate Section 41 requirements.

What Should Ohio CFOs and CPAs Review in 2026?  

Rather than treating research expense planning and R&D credit analysis as separate year-end exercises, businesses may benefit from reviewing them together.

Important questions include:

• Where was the research performed?
  Section 174A specifically addresses domestic research or experimental expenditures.
• Which projects meet the Section 41 requirements?
  Project-level technical facts still matter for the credit.
• Which expenses are potentially qualified research expenses?
  Wages, supplies, and certain contract research expenses require separate analysis.
• How will the Section 280C election be handled?
  Current Form 6765 instructions require taxpayers to address the Section 280C reduced-credit election. If the reduced credit is not elected, domestic Section 174A amounts otherwise deducted or capitalized generally must be reduced by the research credit amount. 

What Happens to Research Costs Capitalized From 2022 Through 2024?  

Businesses may still have unamortized domestic research expenditures from the period when capitalization was required.

Current law provides transition options for certain amounts paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2025. The appropriate treatment can depend on the taxpayer’s size, prior filings, accounting method, and elections.



This is an area where businesses should coordinate closely with their CPA or tax adviser.

Documentation Still Matters  

The return of current domestic R&D expensing does not reduce the need for documentation when claiming the R&D Tax Credit.

Useful records may include:

•  Project descriptions and timelines
• Engineering or technical notes
• Prototype and testing records
• Software development documentation
• Employee time support
• Supply records
• Contract research documentation
• Technical meeting records

For Section 41, those records should help establish what uncertainty existed, what alternatives were evaluated, who performed the work, and which expenses relate to qualified research.

FAQs Section 174A and the R&D Tax Credit  

Coordinate Research Expensing and R&D Credit Planning  

For Ohio businesses, Section 174A and the R&D Tax Credit should be reviewed together but treated as distinct tax provisions. Section 174A determines how domestic research expenses are recovered, while Section 41 determines whether qualified research expenses may generate a credit.



RCG Tax Partners supports Ohio businesses with technical R&D Tax Credit analysis, qualified expense review, and documentation that can help tax teams evaluate credit eligibility alongside broader research-expense planning.