Recent Small Business Tax Reform: Section 174 R&D Capitalization, Beneficial Ownership Reporting, and What Every Owner Should Know

The past several years have brought some of the most consequential changes to small business tax compliance in decades. From the Section 174 R&D capitalization requirement that has bankrupted cash-strapped software companies, to the Corporate Transparency Act's beneficial ownership reporting that affects nearly every U.S. entity, to SECURE 2.0's retirement plan modernization, small business owners face a rapidly evolving compliance landscape that demands attention.

Section 174 R&D Capitalization (Effective 2022)

Beginning with tax year 2022, taxpayers are required to capitalize and amortize specified research and experimental expenditures rather than deduct them currently:

• 5-year amortization for domestic R&D.

• 15-year amortization for foreign R&D.

• Half-year convention applies — meaning only 10% of domestic R&D is deductible in year 1.

The rule applies broadly to specified research and experimental costs, including ALL software development costs — even routine application development.

For a software startup spending $5M annually on engineering payroll:

• Pre-2022: Full $5M deductible currently.

• 2022 forward: Only $500,000 deductible in year 1; remaining $4.5M amortized over years 2-6.

For startups with low or no revenue, this creates "phantom income" — owing tax on income that doesn't economically exist. The cash flow damage has been substantial across the technology sector.

Legislative Relief Status

The Tax Relief for American Families and Workers Act of 2024 proposed restoring full domestic R&D expensing for 2022-2025. Subsequent proposals continue to push for restoration. Watch federal legislation through 2025 — if relief is enacted retroactively, taxpayers may be able to file amended returns or accounting method changes to recover refunds.

Corporate Transparency Act / BOI Reporting

The Corporate Transparency Act (CTA), effective January 1, 2024, requires most U.S. corporations, LLCs, and similar entities to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN).

Who Must File

Generally, every U.S. business entity formed by filing a document with a state secretary of state, including:

• Corporations (C-corps, S-corps).

• Limited Liability Companies (LLCs).

• Limited Partnerships.

• Other entities created by filing.

Sole proprietorships and general partnerships not formed by filing are typically exempt.

What Must Be Reported

For each "beneficial owner" (anyone who directly or indirectly owns 25% or more, or exercises substantial control):

• Full legal name.

• Date of birth.

• Residential address.

• Identification document (driver's license, passport).

Filing Deadlines

• Entities formed before January 1, 2024: Initial BOI report due January 1, 2025.

• Entities formed during 2024: 90 days from formation.

• Entities formed during 2025+: 30 days from formation.

• Updates required within 30 days of any change.

Penalties

Civil penalties of up to $591/day for willful violations. Criminal penalties up to $10,000 and 2 years imprisonment.

2024-2025 Litigation

The CTA has faced multiple constitutional challenges. As of early 2025, court orders have temporarily enjoined enforcement in various jurisdictions. The status remains in flux — most CPAs and attorneys are recommending compliance pending final resolution.

SECURE 2.0 Act Provisions

The SECURE 2.0 Act of 2022 introduced numerous retirement plan changes affecting small business owners.

Increased Catch-Up Contributions for Ages 60-63

Beginning 2025, taxpayers ages 60-63 can contribute additional catch-up amounts:

• 401(k)/403(b)/457: $11,250 catch-up (vs $7,500 standard catch-up).

• SIMPLE IRA: $5,250 catch-up.

This four-year window provides meaningful additional retirement deferral for high earners approaching retirement.

Mandatory Roth Catch-Up for High Earners

Beginning 2026 (delayed from 2024), taxpayers with prior-year wages over $145,000 (2025 threshold) must make catch-up contributions on a Roth basis — no longer pre-tax.

RMD Age Increases

• Age 73 for taxpayers reaching 72 after 2022.

• Age 75 for taxpayers reaching 74 after 2032.

Reduced Missed RMD Penalty

The penalty for missed RMDs reduced from 50% to 25% (10% if corrected within 2 years).

Roth SEP and SIMPLE Plans

Beginning 2023, SEP-IRAs and SIMPLE IRAs can permit Roth contributions — previously these were pre-tax only. Provides additional flexibility for self-employed taxpayers and small businesses.

529-to-Roth Rollover

Beginning 2024, unused 529 plan balances can be rolled to a Roth IRA in the beneficiary's name (subject to limits — see our 529 vs Coverdell post for details).

Qualified Longevity Annuity Contracts (QLACs)

Increased dollar limit and elimination of the percentage limit, making QLACs more accessible for retirement income planning.

Student Loan Matching

Employers can match employee student loan payments with retirement plan contributions — treating loan payments as if they were retirement contributions for matching purposes.

1099-K Reporting Threshold Changes

The 1099-K reporting threshold for third-party payment networks (PayPal, Venmo, Stripe, etc.) has been a moving target:

• Pre-2022: $20,000 + 200 transactions.

• American Rescue Plan Act: $600 (any number of transactions) — would have dramatically expanded reporting.

• IRS delays: Implementation delayed multiple times.

• 2024: $5,000 threshold for 2024 transactions.

• 2025: $2,500 threshold (current schedule).

• 2026: $600 threshold (currently scheduled).

For small business owners receiving payments through these networks, the lower thresholds mean significantly more 1099-K forms received. Importantly, receiving a 1099-K doesn't change underlying tax treatment — it just creates IRS information matching.

Inflation Reduction Act Energy Provisions

The IRA expanded clean energy tax incentives that affect small businesses:

• §179D Energy Efficient Commercial Buildings Deduction: Up to $5.65/sq ft for 2025 (with 5x multiplier for prevailing wage projects).

• §45L New Energy Efficient Home Credit: Up to $5,000 per qualified home for builders.

• §48 Investment Tax Credit: Up to 50%+ of clean energy installations with bonuses.

• EV credits: Commercial clean vehicle credit up to $40,000 for heavy commercial vehicles.

Inflation Adjustments and Indexed Provisions

Multiple small business-relevant amounts are inflation-adjusted annually:

• Section 179 expensing limit: $1,250,000 for 2025.

• Section 199A QBI threshold: $241,950 single / $483,900 joint for 2025.

• Estate and gift tax exemption: $13.99M per person for 2025.

• Annual gift exclusion: $19,000 per recipient per donor.

• Solo 401(k) limit: $70,000 ($77,500 with catch-up at 50+).

• HSA family contribution: $8,550.

State-Level Changes to Watch

Beyond federal changes, state-level developments affecting small businesses:

• Pass-Through Entity Tax (PTET): Continued expansion in additional states.

• State income tax changes: Some states reducing rates; others adopting graduated brackets.

• State R&D credits: Some states providing relief beyond the federal §174 issues.

• Marketplace facilitator laws: Continued expansion of state sales tax obligations on third-party platforms.

• Gig worker classification: ABC tests and worker classification disputes in several states.

Form 1040 Digital Asset Question

The crypto/digital asset question on Form 1040 has expanded scope. The 2024-2025 versions specifically capture broader categories of digital asset activity. Affirmative answers can trigger additional reporting requirements and IRS scrutiny.

Common Mistakes

• Failing to file BOI reports by the deadline (significant penalty exposure).

• Not capitalizing R&D costs under §174 (creates audit risk and accounting method change requirements).

• Missing the SECURE 2.0 super-catch-up opportunity for ages 60-63.

• Treating 1099-K amounts as new taxable income (these are information returns, not new income).

• Failing to assess §179D and §45L eligibility for construction and design firms.

• Not coordinating PTET elections with multi-state operations.

• Missing energy credit eligibility for clean energy investments.

Bottom Line

The pace of small business tax law change has accelerated significantly in recent years. Section 174 capitalization remains painful pending congressional relief. BOI reporting requirements are new compliance obligations affecting nearly every entity. SECURE 2.0 has restructured retirement plan options. Energy incentives have dramatically expanded. For small business owners, working with a CPA who actively monitors these changes — rather than treating tax compliance as a once-a-year activity — is essential to capturing benefits and avoiding penalties.