In July 2025, the U.S. Congress passed the One Big Beautiful Bill Act (OBBB), reversing a key tax change that had burdened many design and development teams since 2022. This new legislation restores the ability to fully deduct domestic research and experimentation (R&E) expenses, including usability testing and UX research, in the same year they are incurred.
What Changed in the Tax Code?
Prior to 2022, companies could immediately deduct eligible R&E costs -- including software development and user research -- under Section 174. The Tax Cuts and Jobs Act (TCJA) changed that, forcing amortization of R&E expenses over 5 years (domestic) or 15 years (foreign), starting in 2022.
Under the 2025 OBBB, Section 174A was introduced, allowing domestic R&E expenses to be fully deductible again starting in 2025.
Foreign R&E expenses must still be amortized over 15 years. No change there.
UX Research and Usability Testing Now Count as Deductible R&D
The IRS classifies software development, product prototyping, and technical design testing as qualifying R&D activities. That now explicitly includes:
- Usability testing
- Human-centered design studies
- Accessibility audits
- User interviews and contextual inquiry
- Information architecture testing
- A/B and multivariate testing
- UX research reports and analysis
- Software-based prototyping and mockups
If your company conducts any of these activities within the U.S., you may now fully deduct these costs under Section 174A.
Who Benefits from This Change?
UX Agencies
If your business conducts client-funded user research or usability testing, your eligible labor, tools, and time can now be expensed in the year incurred.
Internal Product Teams
If you are running design sprints, user studies, or iterative UI testing, you can now deduct the cost of that work—including designer and researcher salaries attributed to R&E.
Freelancers and Small Firms
If your company earns less than $31 million in average annual gross receipts (under IRC 448(c)), you may amend past returns (2022 -- 2024) to take advantage of the full deduction.
Retroactive Opportunities for 2022 -- 2024
Companies that previously amortized usability research may take advantage of retroactive deduction options:
- Elect a 1-year or 2-year recovery of remaining unamortized expenses.
- Small businesses may file amended returns to fully deduct past R&E expenses.
Check with a qualified tax advisor to see which method is best for your business model.
What to Track for Deduction
To maximize your deduction, carefully document:
- Time logs of design/research personnel
- Invoices from subcontracted user researchers
- Prototypes and test results tied to product development
- Software and platform costs related to R&D
Frequently Asked Questions
Is user testing tax deductible in 2025?
Yes -- under Section 174A, usability testing and UX research conducted domestically is now fully deductible in the year the expense occurs.
What is the difference between Section 174 and Section 41?
Section 174A allows deduction of R&D expenses. Section 41 is a tax credit for qualified R&D. They can be used together, but require careful coordination.
Can startups deduct prototyping and user research?
Yes, as long as the activity is related to software or product development, and is conducted in the U.S.
What is not deductible under Section 174A?
- Foreign-based R&D (must still be amortized)
- Post-launch marketing or customer feedback
- Pure market research or business model design
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Final Thoughts
This change is a win for designers, researchers, and product builders alike. Now is the time to revisit your budgeting and tax planning strategies to maximize your deductions for user research and invest more in human-centered design.
Ready to optimize your UX research investments?
At Brainstorm Ergonomics, we help teams conduct tax-deductible usability research that drives real business value. Let us help you build better products while maximizing your tax benefits.
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