INSIGHT

Life sciences tax planning upheaval: How the OBBBA transforms your strategic approach 

July 18, 2025

Industries: Life Science

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The recently enacted One Big Beautiful Bill Act (OBBBA), signed into law on July 4th, 2025, has fundamentally reshaped the tax landscape for pharmaceutical companies, biotech businesses, and medical device manufacturers.  

This comprehensive legislation delivers important relief and long-term strategic advantages that should impact how you approach research and development investments, manufacturing operations, and overall business planning. Let’s take a closer look at the details. 

The end of R&E cash flow constraints 

Under the OBBBA, taxpayers now have the option to elect immediate expensing for domestic research and experimental (R&E) expenditures (rather than mandatory capitalization), for tax years beginning after December 31, 2024. This marks the end of years of cash flow strain that has plagued businesses engaged in research activities, particularly those with collaboration agreements or significant invested capital. 

Since the Section 174 changes from the Tax Cuts and Jobs Act (TCJA) took effect for tax years beginning after December 31, 2021, your company has likely felt the burden of capitalizing and amortizing R&E expenditures over five years for domestic research and 15 years for foreign research. This requirement created significant cash tax burdens and compliance challenges, forcing companies to spread deductions for R&E activities over multiple years instead of recognizing them when costs were actually incurred. The result? Reduced ability to reinvest capital into growing your business and increasing research activities. 

With immediate domestic R&E expensing restored, you can redirect those tax savings back into innovation and growth. However, some companies may still benefit from electing to capitalize and amortize domestic R&E over five years, depending on their specific tax strategy and planning objectives.  

Strategic R&D planning opportunities 

Maximizing domestic research benefits 

The restoration of immediate expensing for domestic R&E activities creates planning opportunities for your life sciences company. You should consider: 

• Accelerating domestic clinical trial timelines to capture immediate tax benefits 
• Restructuring research operations to maximize domestic activities  
• Optimizing the timing of research expenditures and elections to align with your tax planning strategy 

Managing the foreign R&D landscape 

While domestic R&E expensing returns to immediate deductibility, foreign research activities remain subject to 15-year amortization requirements. This creates a dual-track approach requiring careful navigation: 

Domestic research advantages: 

• Immediate deductibility of qualifying expenditures 
• Improved cash flow for reinvestment 
• Enhanced return on investment for domestic research facilities 

Foreign research considerations: 

• Continued 15-year amortization requirement 
• Need for strategic planning around international clinical trials and foreign tax benefits 
• Potential restructuring of global research operations 

Manufacturing facility advantages under qualified production property provisions 

The OBBBA extends beyond R&D benefits to include enhanced depreciation provisions for manufacturing facilities. Your manufacturing operations may now qualify for accelerated depreciation, enabling faster recovery of capital investments in production equipment.  

Strategic facility planning 

Consider how these provisions affect your long-term facility planning: 

• Timing of new facility construction or expansion 
• Equipment purchase and installation schedules 
• Geographic considerations for manufacturing locations 

Clinical trial cost optimization strategies 

Your clinical development strategy can now incorporate tax considerations more effectively. 

Cost structure optimization 

• Review clinical trial cost allocation between domestic and foreign activities 
• Assess contract research organization (CRO) arrangements for tax efficiency 
• Consider the tax implications of collaborative research agreements 

Navigating R&D tax credits alongside new expensing provisions 

Below are some important considerations for your R&D tax credit strategy:  

Compliance considerations  

• Maintain detailed documentation (e.g., time tracking and project records) supporting both expensing and credit claims 
• Plan for expanded disclosure requirements beginning with the 2025 tax year 
• Evaluate state-level opportunities for combined federal and state benefits 
• Prepare for nonconforming states that may not adopt the new federal legislation 

Implementation timeline and next steps 

The OBBBA’s provisions are effective for tax years beginning after December 31, 2024 – and for eligible small business taxpayers, retroactive to tax years beginning after December 31, 2021 – creating immediate implementation opportunities.  

The OBBBA allows companies with average gross receipts under $31 million to elect – within one year of enactment – to amend prior tax returns and expense previously capitalized domestic R&E costs. 

Your action plan should include: 

• Comprehensive review of prior and current R&E expenditure positions  
• Assessment of eligibility for cash tax refunds  
• Evaluation of disclosure requirements in public filings and audited financial statements 

Taking action on your life sciences tax strategy 

The One Big Beautiful Bill Act represents more than just tax relief—it’s a catalyst for strategic planning in how life sciences companies approach research, development, and manufacturing investments. The immediate restoration of domestic R&E expensing, combined with accelerated manufacturing depreciation, creates opportunities for accelerating innovation and growth. 

Your company’s ability to capitalize on these opportunities depends on thoughtful planning and strategic implementation. The intersection of immediate expensing, manufacturing incentives, and credit optimization requires careful coordination to maximize benefits while maintaining compliance. 

Ready to transform your life sciences tax strategy? Contact BPM today to discuss how the One Big Beautiful Bill Act can accelerate your company’s research and development initiatives while optimizing your overall tax position. Our team will help you navigate the complexities of the new legislation and develop a comprehensive strategy tailored to your unique business needs.