Bottom line up front: The 2025 tax landscape has opened the door wider than ever for R&D tax credits. For qualifying dental practices, these credits are now more valuable thanks to new legislation that restored immediate expensing of domestic R&D costs.

Many dentists assume R&D tax credits are just for tech companies or pharmaceutical labs. In reality, practices that invest in developing new materials, techniques, or technologies may qualify, and 2025 changes make those opportunities more compelling than in years past.

What Are R&D Tax Credits for Dental Practices?

The Research and Development Tax Credit (officially called the Credit for Increasing Research Activities under Section 41) rewards businesses that invest in innovation. It applies at both the federal level and in more than 30 states, many of which offer their own version of the credit to reduce state tax liability.

For dental practices, the credit isn’t about routine patient care — it’s about activities that push the practice forward. That might mean developing new treatment techniques, experimenting with restorative materials, or building out practice-specific technology and workflows.

State angle: Applying for the credit at the state level is often straightforward, and some states — including California — offer particularly strong programs that can compound the benefit for qualifying practices. California is a standout example because its credit includes an indefinite carryforward provision, meaning unused credits never expire and can offset future tax years.

The 2025 Game Changer: Why This is the Best Year Yet for R&D Credits

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, removed the biggest barrier to claiming R&D credits by permanently reinstating immediate expensing of domestic research expenditures under new Section 174A.

From 2022 through 2024, businesses had no choice but to capitalize and amortize R&D costs over five years, regardless of whether they also claimed the R&D credit. This reduced the immediate tax value of research investments and made the credit less attractive.

Beginning in 2025, that barrier is gone. Qualifying practices can now deduct their research costs immediately and also claim the R&D tax credit in the same year.

Important note: While this creates a powerful benefit, Section 280C requires most taxpayers to reduce their R&D credit by the portion of expenses already deducted, preventing a full double-dip. Even with this adjustment, the combined benefit is far stronger than it was under the 2022–2024 rules.

For dental practices engaged in qualifying research activities, 2025 marks a turning point. Immediate expensing has been restored, and combined with the R&D credit, the overall benefit is back to its strongest form since before the 2022–2024 amortization rules.

What Dental Activities Actually Qualify?

To qualify for the R&D Tax Credit, a project must pass the IRS’s four-part test:

• Business purpose: The goal is to improve a product, process, or technique used in the practice.

• Experimental process: The work involves evaluating alternatives or trial-and-error testing.

• Hard sciences: The methods draw on principles of biology, chemistry, engineering, or computer science.

• Technical uncertainty: The project addresses unknowns that could not be resolved without experimentation.

When applied to dentistry, that might include:

• Developing new dental composite materials or testing alternative restorative options.

• Researching and implementing new treatment protocols for complex cases.

• Streamlining patient management software or building practice-specific technological solutions.

• Experimenting with CAD/CAM workflows and digital dentistry integration.

• Creating new surgical techniques — for example, a practice might document trials of a guided-implant placement method designed to reduce chair time and shorten recovery, recording the uncertainty, tests performed, staff hours, and materials used.

What doesn’t qualify:

• Routine dental cleanings, fillings, extractions, and other daily patient services.

• Adapting existing procedures to individual patients (e.g., orthodontists fitting braces).

• Purchasing new equipment without materially modifying it or developing new processes around it.

• Standard continuing education or training activities.

Gray area caution: Many vendors promote ordinary dental activities as “R&D” to sell credit studies, but the IRS only accepts claims backed by systematic experimentation and detailed documentation.

The New 2025 IRS Reporting Requirements

IRS reporting requirements for R&D tax credits were significantly updated for tax year 2024, and the bar is now higher than ever. The IRS wants to see the specifics of your research activities up front, when you file — not just later in an audit. In practice, that means your tax return itself must be supported by a robust project narrative.

Here’s what that means for your practice:

1. Section G Is Now Mandatory: Starting with returns filed in 2025, if your practice reports more than $1.5 million in qualified research expenses (QREs), you must complete Section G of Form 6765. This section demands the kind of detail that used to be requested only during an audit.

2. Expanded Disclosures — and What They Really Mean: The revised Form 6765 requires you to file a detailed narrative right along with your return. For a dental practice, this means you must:

• Identify business components accounting for at least 80% of QREs.
  Translation: You must name the specific projects that generated most of your R&D costs. Example: instead of “R&D,” you’d write “Development of a new digital workflow for same-day crown milling.”
  
  

• Describe the information sought to resolve technical uncertainty.
  Translation: Explain the challenge and why it wasn’t solved by off-the-shelf methods. Example: “We were uncertain whether a new digital scanning and milling process could consistently produce crowns with superior fit and durability compared to our manual process.”
  
  

• Provide details of the experimental process used.
  Translation: Show you followed a systematic process, not just adopted new equipment. Example: “We tested the new workflow on 20 patients, documenting crown fit, occlusal adjustments, and comfort compared to the prior method.”

Why This Matters: These rules aren’t just more paperwork — they change the standard for what counts as a legitimate R&D claim. The IRS has made it clear: vague or boilerplate descriptions will not pass. An incomplete Form 6765 could be treated as an invitation for audit.

Audit Risk Alert: The IRS has specifically increased scrutiny of R&D credit claims from dental practices, focusing on those with weak documentation. Filing under the new standards without a clear, defensible narrative could place your practice in a high-risk category for audit.

Who Should Seriously Consider R&D Credits in 2025?

With immediate expensing restored, the R&D credit is more appealing than ever. The key question isn’t whether the credit is valuable — it absolutely is — but whether your practice’s activities rise to the level the IRS considers “qualified research.”

Dental practices most likely to benefit include those that are:

• Experimenting with new materials or techniques.
  Example: Testing alternative composites, developing faster healing implant protocols, or piloting new surgical workflows.
  
  

• Integrating advanced technology.
  Example: Building or modifying custom CAD/CAM or scanning software to improve accuracy and patient outcomes.
  
  

• Collaborating with dental schools or research partners.
  Example: Participating in structured trials or joint studies that involve uncertainty and documented experimentation.
  
  

• Investing substantial staff time in systematic testing.
  Example: Tracking hours, documenting patient outcomes, and refining methods through trial and error.

Not every practice will qualify, but many underestimate what counts. Routine fillings or patient-specific adaptations don’t meet the standard. But practices that methodically test new workflows, document results, and push their clinical or technological boundaries often do.

Transition Rules: What to Do About 2022–2024 Costs

One of the hidden gems of the new law is what it does for research costs you already paid in prior years. From 2022 through 2024, dental practices were forced to capitalize and amortize R&D costs over five years. The OBBBA not only restores immediate expensing starting in 2025 — it also gives practices options for how to handle those prior-year costs.

Here are the choices available:

• Deduct the full remaining balance in 2025.
  Translation: Wipe the slate clean — expense everything left in one year.
  
  

• Spread the deduction over two years (2025 and 2026).
  Translation: Take 50% in 2025 and the rest in 2026 if you prefer to smooth income.
  
  

• For small practices (≤ $31 million in average gross receipts), amend prior returns for 2022–2024.
  Translation: Instead of waiting, you can go back, fully expense those costs, and potentially generate refunds. The deadline for amended filings is July 4, 2026.

Why this matters: For a dental practice that invested heavily in new technology, workflows, or materials during those years, these rules can unlock immediate cash flow. Even if you never claimed the R&D credit before, reviewing past returns now could uncover refunds worth pursuing.

Planning tip: The window for amendments is short. If your practice made significant R&D investments in 2022–2024 — like digital dentistry integration, implant workflow development, or software customization — it’s worth sitting down with a tax advisor soon to map out which of the three paths delivers the most benefit. Choosing whether to amend, deduct all in 2025, or spread over two years depends on your cash flow needs and tax profile. A tax advisor can model the scenarios to show which option delivers the best result for your practice.

Calculating Potential Savings

The R&D credit isn’t one-size-fits-all. The IRS provides two main calculation methods:

• Traditional method: 20% of qualified research expenses (QREs) above a base amount.

• Alternative Simplified Credit (ASC): 14% of QREs that exceed 50% of the average QREs from the prior three years.

In practice, this usually translates into a benefit equal to 6–12% of your qualifying research costs, depending on your history and method.

Example: Suppose a dental practice invests $200,000 in qualifying research activities — such as experimenting with new digital scanning and milling workflows. Depending on the calculation method, the practice might generate an R&D credit worth $12,000 to $24,000.

Why 2025 is different: From 2022 through 2024, those same costs had to be amortized over five years, diluting the benefit. OBBBA now allows practices to expense those costs immediately and claim the credit on top of it. While Section 280C reduces the credit slightly to prevent a full double-dip, the combined benefit is still far more valuable than it was under the old rules.

Planning tip: The choice between the traditional and simplified method can make a meaningful difference. A tax advisor can model both approaches to determine which one maximizes your practice’s benefit.

Documentation Requirements That Actually Matter

The biggest shift for 2025 isn’t just in how much you can claim — it’s in how well you have to prove it. The IRS has made it clear: vague or boilerplate documentation won’t cut it.

Here’s what your practice needs to keep on file to support an R&D credit claim:

• Project records that show the technical challenge you were trying to resolve.

• Employee time logs that track hours spent on qualifying research activities.

• Experimentation notes documenting the trial-and-error process, including alternatives tested and why certain approaches were abandoned.

• Materials and supply records specifically tied to R&D work.

• Clear business purpose statements for each project — why the work mattered to your practice and how it sought to improve a process, material, or outcome.

Why this matters in 2025: With the new Form 6765 requiring narratives filed directly with your tax return, your documentation now needs to be audit-ready the moment you file. A generic statement like “tested new workflows” won’t stand up. You’ll need specifics, such as:

“We tested a new digital impression and milling process on 20 cases, tracking chair time, fit accuracy, and patient comfort compared to the legacy workflow.”

As with all R&D claims, robust documentation is essential to mitigate audit risk, which has increased with the new 2025 reporting standards.

Planning tip: Set up documentation systems now — even a simple log of research hours, supply use, and testing notes — so your 2025 return is supported by real evidence.

Our Recommendation for Dental Practices

The 2025 landscape makes R&D credits far more attractive, but they’re not a fit for every practice. The key is to be honest about whether your activities truly meet the IRS’s four-part test.

If your practice is genuinely innovating — developing new materials, testing novel techniques, building out custom digital workflows, or collaborating on structured research projects — the R&D credit can deliver substantial benefits. With immediate expensing restored, those benefits now show up in cash flow much faster.

If your practice is mostly providing routine care, however, the credit probably isn’t worth chasing. The IRS is closely watching the dental industry, and overreaching claims promoted by aggressive vendors can lead to audits, penalties, and wasted time.

Instead, many general practices may see better results from proven tax strategies such as:

• Maximize equipment deductions through Section 179 and bonus depreciation

• Optimize your practice entity structure for tax efficiency

• Implement strategic retirement planning with cash balance plans

• Leverage the 20% Qualified Business Income deduction effectively

Caution on vendors: Be wary of companies promising “easy” credits at conferences or online. If a consultant tells you everyday use of in-house milling machines or lab equipment guarantees tens of thousands in credits, that’s a red flag. The IRS expects systematic research and detailed documentation — not just the purchase of new technology.

Bottom line: For practices doing real R&D, the 2025 changes create a strong opportunity. For others, focus on strategies that reliably improve your tax position.

When to Consider Professional Help

If you're convinced your practice conducts substantial qualifying research, don't go it alone. Unsure if your 2024 R&D credit documentation meets the new IRS standards? Experienced R&D Tax Credit professionals can help you navigate the updated requirements, document your qualified research activities properly.

Some companies market the credit aggressively to dentists, but without proper documentation, these claims rarely hold up. Work with advisors who understand both dental practices and the IRS rules.

For financial professionals advising dental practices, the safer approach may be partnering with experts who understand both the healthcare context and the IRS’s strict standards. That way, you can help clients capture legitimate opportunities without promoting risky or overstated claims.

The Bottom Line

R&D tax credits are back in play for 2025, and for dental practices that truly innovate, the opportunity is once again highly favorable. With immediate expensing restored, qualifying practices can capture both the credit and the deduction in the same year, improving cash flow and long-term savings.

But the keyword is qualifying. The IRS’s new reporting standards raise the bar, and audit scrutiny is especially high in the dental industry. Many general practices won’t meet the technical requirements, and overreaching claims can do more harm than good.

If your practice is pushing the boundaries with new techniques, digital workflows, or proprietary research, the credit may be worth exploring. If not, there are plenty of proven strategies — from Section 179 expensing to QBI optimization to retirement planning — that can deliver real savings without unnecessary audit risk.

Town’s healthcare-focused advisors help dental practices separate hype from real opportunity. If your practice is innovating and you want to know whether the R&D credit is worth pursuing, Town can guide you in strengthening your documentation and identifying the strategies that truly maximize savings.

Disclaimer: This content is for informational and educational purposes only. It is not intended as personalized tax advice. Tax laws are complex, subject to change, and may apply differently based on your specific circumstances. Strategies that benefit one taxpayer may not be appropriate for another. Consult a qualified tax professional before making decisions based on this information.