New York State has enacted significant tax changes that will affect many freelancers residing in the state or who have a tax nexus for their business there. What makes these changes particularly urgent is that they apply for 2025 tax return filings, which means that you may need to file an amended tax return to stay in compliance and avoid fines and penalties. 

As part of the 2026 to 2027 NYS budget, the state has decoupled from two major federal provisions: accelerated depreciation for qualified production property (QPP) and the federal treatment of research and experimental (R&E) expenditures. These changes apply to tax years beginning on or after January 1, 2025, and they require immediate attention.

Here is what you need to do if these changes affect you as a freelance business owner:

If your 2025 tax return has been filed, an amended return must be filed to report the modifications to the QPP or R&E expenditures. NYS is now requiring that the full amount of any federal deduction for accelerated depreciation on qualified production property under IRC § 168(n) must be added back to the income claimed on your 2025 return. This means freelancers who have already filed may need to revisit their returns, and those who haven’t filed yet must incorporate these adjustments when they file taxes for 2025.

New York State Eliminates Federal Accelerated Depreciation for QPP

Under federal tax law, certain production-related real property can be fully expensed. NYS now rejects this tax regulation on the state level tax return. For NYS purposes, taxpayers must add back the full federal accelerated depreciation deduction and then subtract depreciation calculated as if the special federal election had not been made, using standard rules under IRC § 167.

Freelancers who own production-related real property, such as small manufacturers, fabricators, or agricultural producers must now maintain two depreciation schedules: one for federal tax and one for New York State.

New York Also Decouples from Federal R&E Rules

The federal government now requires capitalization and amortization of R&E expenditures under IRC §§ 174 and 174A. NYS has chosen a different approach. The notice states that the full amount of any federal deduction for foreign and domestic R&E expenditures must be added back.

New York State now requires:

• Add back of the full federal R&E deduction
• Subtraction based on New York’s own amortization rules
• R&E expenditures paid or incurred on or after January 1, 2025 must be amortized over 60 months
• R&E expenditures before January 1, 2025 follow the federal rules in effect on January 1, 2022

This creates a dual-tracking requirement for freelancers who engage in product development, scientific research, or experimental design.

Freelancers May Need to Amend Their 2025 Tax Returns

If you filed your 2025 freelance taxes by the April 15 deadline this year, you may need to amend your return to accommodate these changes. New York State explicitly requires amended returns for anyone who filed before these rules were announced. Penalty and interest relief is available for taxpayers who timely file or amend to reflect these changes. If you receive a bill or notice, the state advises attaching a written explanation noting that the underpayment relates to the H.R. 1 modifications.

Review your 2025 federal tax return for QPP or R&E deductions. If you claimed accelerated depreciation or R&E deductions federally, you must adjust them for New York State taxes. Prepare separate NYS schedules for depreciation and amortization. It is important to amend your freelance tax return early if needed to avoid penalties and be sure to maintain accurate documentation, as NYS may request proof of calculations.

Take Action Now to Amend 2025 Tax Returns

Many freelancers, especially those engaging in design, engineering, fabrication, or product development incur R&E costs or invest in production-related property. These new rules create additional administrative work, more complex state filings, potential cash-flow impacts, and a need for proactive planning.

New York’s decoupling from federal depreciation and R&E rules adds complexity to 2025 freelance tax filing, especially now that it is past the regular tax filing window, but if you work with a qualified tax professional to help you, navigating New York State’s evolving tax landscape will be much easier.