--- title: "Section 174 Fixed: What the R&D Expensing Change Means for SaaS Cash Taxes | Capstone CFO" description: Domestic R&D can be expensed again under Section 174A. What the change means for SaaS cash taxes, forecasts and investor reporting. image: https://capstonecfo.com/hubfs/capstone-2026/insights-covers/section-174-fixed-saas-cash-taxes.png --- [Skip to content](https://capstonecfo.com/blog/section-174-fixed-saas-cash-taxes#main-content) [![Capstone CFO](https://capstonecfo.com/hs-fs/hubfs/capstone-2026/capstone-logo-light.png?width=79&height=46&name=capstone-logo-light.png)](https://capstonecfo.com/) - What We Do ###### How We Engage - [Fractional CFO](https://capstonecfo.com/cfo-plans) - [CFO & Accounting](https://capstonecfo.com/cfo-and-accounting-plans) - [Special Projects & Transactions](https://capstonecfo.com/special-projects) ###### Problems We Solve - [Cash Flow Problems](https://capstonecfo.com/solutions/cash-flow-problems) - [Late or Inaccurate Financials](https://capstonecfo.com/solutions/late-or-inaccurate-financials) - [Forecasting & Planning](https://capstonecfo.com/solutions/financial-forecasting-and-planning) - [KPIs & Board Reporting](https://capstonecfo.com/solutions/kpis-and-board-reporting) - [Fundraising Readiness](https://capstonecfo.com/solutions/fundraising-readiness) - [Exit & M&A Readiness](https://capstonecfo.com/solutions/exit-and-m-and-a-readiness) - Who We Serve ###### Ownership [**PE & VC-Backed Companies**Board and investor reporting, 13-week cash flow and exit readiness](https://capstonecfo.com/#who-we-serve) [**Independent & Founder-Led Companies**Owner-level visibility, cash control and growth planning](https://capstonecfo.com/#who-we-serve) ###### Technology & Digital - [SaaS & Software](https://capstonecfo.com/saas-and-software-companies) - [E-Commerce & Digital Retail](https://capstonecfo.com/e-commerce-and-digital-retail) ###### Services - [Professional Services](https://capstonecfo.com/professional-services) - [Advertising & Marketing Agencies](https://capstonecfo.com/advertising-agencies) - [Healthcare Practices](https://capstonecfo.com/healthcare-services) - [Home & Field Services](https://capstonecfo.com/home-services-and-field-services) ###### Operations & Real Assets - [Manufacturing & Distribution](https://capstonecfo.com/manufacturing-and-distribution) - [Franchise Operations](https://capstonecfo.com/franchise-operations) - [Real Estate](https://capstonecfo.com/real-estate) - [Insights](https://capstonecfo.com/blog) - [About](https://capstonecfo.com/#team) [Book a Call](https://capstonecfo.com/meeting) Insights # Section 174 Fixed: What the R&D Expensing Change Means for SaaS Cash Taxes Capstone CFO **Short answer:** starting with 2025, U.S. software and research costs can again be deducted in the year they are paid instead of spread over five years, which lowers cash taxes for many profitable or near-profitable SaaS companies. Research performed outside the U.S. must still be amortized over 15 years. SaaS finance teams should update cash tax forecasts, confirm elections with their CPA and reflect the change in models and investor reporting. ## A quick recap From 2022, the 2017 tax law required companies to capitalize research and experimental costs, including most software development, and amortize them over five years (15 years for foreign research). Many SaaS companies with little or no book profit suddenly owed tax. The 2025 One Big Beautiful Bill Act created new Section 174A, restoring immediate deductions for domestic research costs. ## What it means for SaaS companies - **Lower cash taxes** for companies that were paying tax because of amortization. - **Transition rules** for costs capitalized from 2022 to 2024, including a retroactive option for smaller businesses (which had a July 6, 2026 deadline) and catch-up options for larger ones. - **Foreign development still matters:** offshore engineering remains subject to 15-year amortization, which can affect where you build teams. - **Elections:** companies can choose to amortize domestic costs instead, which may make sense in some situations. ## What SaaS finance teams should do 1. Separate domestic and foreign development costs in your accounting. 2. Work with your CPA to confirm treatment for 2025 and 2026 and any remaining transition options. 3. Update your financial model and cash forecast for the new tax profile. 4. Explain the change clearly in board and investor reporting. 5. Coordinate with research tax credit (R&D credit) planning. ## Frequently asked questions ### Does this affect our GAAP financial statements? The change is a tax rule. It affects income tax expense, deferred taxes and cash taxes, but not how software development is accounted for under GAAP. ### Do we still need to track foreign research separately? Yes. Foreign research must still be capitalized and amortized over 15 years. ### Can we still claim the R&D tax credit? Yes, and the interaction between the credit and the deduction should be planned with your CPA. *This article is general information, not tax or legal advice. Tax rules change and depend on your facts; review your situation with your CPA or tax advisor before acting.* *Want help modeling the impact? Learn about our work with [SaaS and software companies](https://capstonecfo.com/saas-and-software-companies) or [talk with our CFO team](https://capstonecfo.com/meeting).* ### Ready when you are. Talk with our CFO team about your goals. [Let's Chat](https://capstonecfo.com/meeting) [![Capstone CFO](https://capstonecfo.com/hs-fs/hubfs/capstone-2026/capstone-logo-light.png?width=93&height=54&name=capstone-logo-light.png)](https://capstonecfo.com/) Fractional CFO, accounting and transaction services for companies ready to scale. Based in Scottsdale, Arizona, serving the Phoenix area and clients nationwide. ![Platinum Tier Badge](https://capstonecfo.com/hs-fs/hubfs/Platinum%20Tier%20Badge.png?width=57&height=64&name=Platinum%20Tier%20Badge.png) #### What We Do - [Fractional CFO](https://capstonecfo.com/cfo-plans) - [CFO & Accounting](https://capstonecfo.com/cfo-and-accounting-plans) - [Special Projects & Transactions](https://capstonecfo.com/special-projects) #### Problems We Solve - [Cash Flow Problems](https://capstonecfo.com/solutions/cash-flow-problems) - [Late or Inaccurate Financials](https://capstonecfo.com/solutions/late-or-inaccurate-financials) - [Forecasting & Planning](https://capstonecfo.com/solutions/financial-forecasting-and-planning) - [KPIs & Board Reporting](https://capstonecfo.com/solutions/kpis-and-board-reporting) - [Fundraising Readiness](https://capstonecfo.com/solutions/fundraising-readiness) - [Exit & M&A Readiness](https://capstonecfo.com/solutions/exit-and-m-and-a-readiness) #### Who We Serve - [SaaS & Software](https://capstonecfo.com/saas-and-software-companies) - [E-Commerce & Digital Retail](https://capstonecfo.com/e-commerce-and-digital-retail) - [Professional Services](https://capstonecfo.com/professional-services) - [Advertising & Marketing Agencies](https://capstonecfo.com/advertising-agencies) - [Healthcare Practices](https://capstonecfo.com/healthcare-services) - [Home & Field Services](https://capstonecfo.com/home-services-and-field-services) - [Manufacturing & Distribution](https://capstonecfo.com/manufacturing-and-distribution) - [Franchise Operations](https://capstonecfo.com/franchise-operations) - [Real Estate](https://capstonecfo.com/real-estate) #### Company - [About](https://capstonecfo.com/#team) - [Insights](https://capstonecfo.com/blog) - [Book a Call](https://capstonecfo.com/meeting) - [Contact Us](https://capstonecfo.com/#contact) Copyright © 2026 Capstone CFO, LLC [Legal Disclaimer](https://capstonecfo.com/disclaimer) ```json { "@context" : "https://schema.org", "@id" : "https://capstonecfo.com/#organization", "@type" : "ProfessionalService", "address" : { "@type" : "PostalAddress", "addressCountry" : "US", "addressLocality" : "Scottsdale", "addressRegion" : "AZ" }, "areaServed" : [ { "@type" : "City", "name" : "Scottsdale, Arizona" }, { "@type" : "City", "name" : "Phoenix, Arizona" }, { "@type" : "State", "name" : "Arizona" }, { "@type" : "Country", "name" : "United States" } ], "description" : "Capstone CFO is a boutique fractional CFO and accounting firm based in Scottsdale, Arizona, serving the Phoenix area and clients nationwide. 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