President Trump’s latest tax legislation—dubbed the “One Big Beautiful Bill Act”—is poised to deliver a meaningful earnings tailwind for software and tech-focused companies, a development wealth advisors may want to factor into client allocations and tax strategy reviews.
At the heart of the bill is a major shift in how companies treat research and development (R&D) costs for tax purposes. The legislation reverses a key provision of the 2017 Tax Cuts and Jobs Act that had required domestic R&D expenses to be amortized over five years starting in 2022. Now, firms can once again expense R&D outlays in the year they occur—a change that lowers taxable income and boosts near-term cash flow.
Even more impactful for some firms is the bill’s retroactive provision, which allows companies to deduct previously deferred R&D expenses all at once. That could translate into sizable tax refunds or reduced tax liabilities for prior years—creating a one-time cash injection that hasn’t yet been fully priced into equity valuations, according to Morgan Stanley analysts.
The mechanics also create a meaningful disconnect between tax accounting and financial reporting. Under GAAP, companies are required to expense R&D costs immediately, regardless of whether they’re amortizing those costs for tax purposes. This discrepancy created deferred tax assets that are now being unlocked faster under the new bill, bolstering future free cash flow.
Morgan Stanley’s technology equity strategist Keith Weiss notes that some firms may still opt to amortize R&D over two or even five years to avoid triggering net operating losses in the short term. But for profitable tech companies, the immediate expensing option is particularly attractive.
For wealth managers with clients holding positions in large-cap software names, this change is more than just a tax footnote—it’s a material financial lever. Microsoft, which spends roughly $27 billion annually on R&D, could see a 4% lift to its free cash flow margin. Oracle and Salesforce are also projected to gain, with margin boosts in the 6% range. Okta, a smaller-cap software security company, may be the biggest winner on a percentage basis, with Morgan Stanley projecting an almost 12% increase in margin.
Adobe, another R&D-intensive firm, is expected to benefit as well, along with other platform-oriented software companies that have built up substantial deferred tax assets during the amortization window.
For RIAs and wealth advisors, the implications are clear: this tax code shift could enhance earnings quality and valuation multiples for select software names—particularly those with disciplined cost controls and large R&D budgets. It may also present tactical opportunities for rebalancing portfolios ahead of earnings season or adjusting after-tax return expectations.
In an environment where interest rates and inflation dominate headlines, this behind-the-scenes tax change offers a unique lever for software companies—and a fresh angle for advisors seeking hidden value for clients.
