Should you amend returns for Section 174?

Small businesses meeting the Section 448(c) gross receipts test of about $31 million can amend returns for Section 174 to retroactively deduct domestic R&D costs capitalized between 2022 and 2024, but the deadline is Monday, July 6, 2026. Because this window is virtually closed, any company that misses the deadline can still use the fallback option of taking a catch-up deduction on their 2025 tax return. Ultimately, the decision to file amended returns or use the 2025 catch-up deduction belongs with your CPA.

Retroactive relief for small businesses

Under the One Big Beautiful Bill Act, signed into law as Public Law 119-21, startups got a major tax break. The law added IRC Section 174A, which allows companies to fully deduct domestic software development and R&D costs in the year they happen. This represents a massive shift from the prior rules, which forced companies to amortize these costs over 5 years.

That amortization requirement created heavy tax burdens for early-stage startups that were not yet profitable.

Only small businesses meeting the Section 448(c) gross receipts test can apply this change retroactively to tax years 2022, 2023, and 2024. To qualify, your average annual gross receipts over the last three years must be about $31 million or less.

Your business must meet these requirements:

• Gross receipts. Average receipts must fall below the $31 million threshold.
• Tax structure. The entity must not be classified as a tax shelter.
• Expense type. The election covers domestic R&D costs only.

If your startup meets these criteria, you can file amended returns to claim deductions for your past domestic R&D expenses. By filing these amended returns, startups can recover the tax they paid on capitalized expenses. This can result in significant cash refunds or reduced tax liabilities for those historical years.

Treating software development under the new rules

Under the new Section 174A, software development costs are explicitly treated as research expenditures. This statutory definition removes any ambiguity about whether building software qualifies for immediate expensing. If you develop software in the United States, you can fully deduct those costs in the year you pay them.

However, if you outsource software development to foreign developers, different rules apply. Foreign R&D costs cannot be fully deducted and must still be amortized over 15 years.

The July 6, 2026 deadline is here

The window to amend your 2022 to 2024 tax returns is closing. Under Revenue Procedure 2025-28, the deadline to make this retroactive election is Monday, July 6, 2026. The IRS cannot extend this date.

Because this deadline is only days away, you must act immediately if you want to file amended returns. Preparing amended returns on such short notice is highly challenging. CPAs require weeks of work to restate historical figures and compile the necessary documentation.

Furthermore, the standard refund statute of limitations under Section 6511 still applies. For some startups, the window to claim a refund for the 2022 tax year may have already closed, even if the July 6 deadline has not. Estimate your potential R&D savings using our calculator.

The 2025 catch-up deduction fallback

If you cannot file amended returns by the July deadline, you still have an excellent fallback option. Any taxpayer with remaining unamortized domestic R&D costs from 2022 to 2024 can elect to deal with those costs directly on their 2025 tax return.

This catch-up method allows you to deduct your remaining unamortized costs in one of two ways. You can either deduct the full remaining balance on your 2025 return, or you can deduct it evenly over the 2025 and 2026 tax years.

This option is treated as an automatic change in accounting method with no July 2026 deadline. Applying this change on a cut-off basis means you do not need to calculate a complex Section 481(a) adjustment. Learn more about how the credit works for startups.

How Section 280C and the R&D credit interact

The R&D tax credit and the Section 174A deduction are separate tax incentives, but they interact directly. Normally, Section 280C requires you to reduce your R&D deductions by the amount of the R&D credit you claim. Alternatively, you can make a Section 280C election to take a reduced credit.

According to the Form 6765 instructions, this reduced-credit election is irrevocable and must be made on a timely filed return. However, under the new relief rules, eligible small businesses making the retroactive election can also make a late reduced-credit election on their amended returns. This means you can adjust your historical credits and deductions to maximize your cash flow.

This late election gives you the flexibility to clean up past filings and claim full deductions. Read our guide on what software work qualifies for the credit.

Deciding your path with your CPA

Choosing whether to amend past returns or take the 2025 catch-up deduction requires a conversation with your CPA. Amending returns can trigger immediate cash refunds but comes with extra filing costs and tight deadlines. The 2025 catch-up pathway is simpler and avoids the rush of the July deadline. Bring our Section 174 founder guide to that conversation.

Your CPA will evaluate your cash flow needs, tax liability, and the cost of preparing amended returns before making a final decision. Claimship helps by building the R&D tax credit study and preparing your Form 6765 package. Your CPA then uses these materials to file your tax return or prepare the amended filings.

This division of labor ensures you get a robust, data-backed technical study without relying on your accountant to write software engineering descriptions. It keeps your development team focused on building features while keeping your filings compliant.