Tax Planning Startup R&D OBBBA Small Business

The Section 174 Small-Business Retroactive Election Closes in Summer 2026: What to File Before the Window Shuts

Published May 26, 2026 by Invisible LLC Team · 9 min read

The short version

If you capitalized domestic research expenses on your 2022, 2023, or 2024 federal returns and your business is small enough to qualify, you have roughly seven weeks left to decide whether to claw that money back. The Section 174 small-business retroactive election under the One Big Beautiful Bill Act (OBBBA) reopens immediate expensing for domestic research and experimental (R&E) costs — but the filing window closes the week of July 6, 2026.

TL;DR: OBBBA permanently restored immediate expensing of domestic R&E under new §174A. Eligible small businesses (≤$31M average gross receipts, tested against the 2025 tax year) can retroactively recover capitalized R&E from 2022 through 2024 — but the filing window closes the week of July 6, 2026. Two related elections have slightly different deadlines, and the job for the next two weeks is to model the catch-up deduction and decide which path to file.

The deadline isn't one date — it's two, and both fall in early July 2026

There are really two deadlines living inside this election, and missing the earlier one quietly forfeits part of the benefit. Build your calendar around both.

Filing	Deadline	What it does
§280C(c)(2) election or revocation (Rev. Proc. 2025-28, Section 6)	July 3, 2026	Lets you choose between a full §174A deduction and a reduced R&D credit (or vice versa) for the catch-up years.
Amended returns for 2022, 2023, 2024 under §174A retroactive election	Earlier of July 6, 2026 or the refund statute of limitations for that year	The mechanism by which you actually recover capitalized R&E. All-or-nothing across the three years.

A few practitioner notes on those dates. First, the §280C(c)(2) deadline of July 3, 2026 is one business day earlier than the amended-return cutoff. Treat the earlier date as the binding one — you do not want to file the amended returns and discover the credit-vs.-deduction election expired three days ago. Second, the amended-return deadline is "earlier of," not "later of." For the 2022 tax year, the standard three-year refund statute under IRC §6511 will close first for most calendar-year filers whose returns were filed on extension in October 2023 — meaning your real 2022 deadline could be in October 2026, but it could also be earlier depending on when you filed.

In practical terms, the last safe date to engage a preparer who can model the catch-up, draft the §280C analysis, and turn around three amended returns is the first week of June. After that you are paying for rush work or eating the deadline. The window is closing fast.

Who qualifies as a "small business taxpayer"

The retroactive election is restricted to "small business taxpayers" as defined in IRC §448(c) — the same gross-receipts test that controls cash-method eligibility, simplified inventory rules, and several other small-business carve-outs. For the 2026 filing window, the test is whether your average annual gross receipts for the three years ending with the 2025 tax year are $31 million or less. Treasury indexed the threshold to inflation under OBBBA, and Rev. Proc. 2025-28 confirmed the $31M figure for tax years beginning in 2026 (Deloitte Heads Up).

A few qualification traps worth flagging:

§448(c) aggregation applies. If you have commonly controlled entities (parent-sub, brother-sister, certain controlled groups), aggregate their gross receipts before applying the $31M test. A small operating company that is part of a larger family of entities may fail aggregation even when its standalone numbers look comfortable.
U.S. incorporation, domestic R&E only. §174A applies to domestic research expenditures. Foreign R&E remains on the 15-year amortization track and is not part of the retroactive relief. Mixed-jurisdiction R&D budgets need to be carefully split.
Tax shelter exclusion. Entities classified as tax shelters under §448(d)(3) — typically partnerships or S corps where more than 35% of losses flow to limited or non-active owners — are out, even if they otherwise meet the size test.
Year-by-year testing matters. Each of the three retroactive years (2022, 2023, 2024) must independently meet the small-business test. A company that ballooned past $31M in 2024 cannot retroactively expense 2024 R&E even if it qualifies for 2022 and 2023.

For Pillar C2 founders, the §448(c) aggregation rule is the most common trip-wire. If your operating company is held under a parent LLC that also owns an unrelated real-estate entity, you may be aggregating gross receipts that have nothing to do with R&D. Run the test cleanly before you assume eligibility.

The math: catch-up deduction vs. continued amortization

Here is the worked example that makes the decision concrete. Assume a small SaaS company capitalized $400,000 of domestic R&E in 2022, amortizing over five years under the pre-OBBBA §174 rules (10% in year one, 20% in years two through five, 10% in year six under the half-year convention). By the end of 2024, the company has deducted roughly $140,000 and is carrying $260,000 of remaining capitalized R&E on the balance sheet.

Under the retroactive election, the company files amended 2022, 2023, and 2024 returns and accelerates the entire $400,000 into immediate-expensing treatment. Depending on the years' marginal rates, that catch-up deduction creates a federal refund in the range of $55,000–$85,000, plus any state-level interaction (more on that below).

The §280C(c)(2) interaction is where many founders get it wrong. The R&D credit under §41 was historically "reduced" by the deduction the credit was based on, unless you elected §280C(c)(2) to take a reduced credit instead. Under the new §174A regime, you must affirmatively decide for each year whether the §280C(c)(2) election remains in force or should be revoked. Picking the wrong path can convert a refund into a tax bill. EY's Technical Line on §174A walks through three common fact patterns; if you have an active R&D credit position, do not file the amended returns without running both paths.

State conformity is a separate decision. Illinois and California, the two states most relevant to Invisible's client base, do not automatically conform to §174A. Illinois is a "rolling conformity" state for many provisions but maintains decoupling for select federal items; California is generally non-conforming and runs its own R&E rules. Model both fed and state before filing — a federal refund partially offset by a state bill is still usually worth taking, but you want to know the net number before you send the returns.

What to file: the three-document checklist

The mechanics of the retroactive election under Rev. Proc. 2025-28 are surprisingly clean once you have the underlying numbers. Three documents per qualifying year:

Amended federal return (Form 1120, 1120-S, or 1065-X). Reclassify capitalized R&E as immediately deducted, recompute taxable income, recompute the R&D credit (if any), recompute NOL carryforwards. The amended-return election is all-or-nothing across the three years — you cannot cherry-pick 2023 only.
Rev. Proc. 2025-28 statement. A standalone attachment confirming the small-business qualification, the years elected, the §280C(c)(2) position, and the amount of capitalized R&E being accelerated. The IRS released a model statement template; the Journal of Accountancy summary of Rev. Proc. 2025-28 is the cleanest practitioner walkthrough.
§280C(c)(2) election or revocation. A separate election statement, due by July 3, 2026 (one business day before the amended-return deadline). This is the one most preparers miss because it does not live on a form.

For pass-through entities, do not forget the K-1 cascade. Amended partnership or S-corp returns flow to amended individual 1040s, which carry their own refund-claim deadlines under §6511. If your owners filed 2022 on extension, the individual-level refund window closes in October 2026 — but the partnership-level cutoff under Rev. Proc. 2025-28 is still early July. Coordinate the entity and individual filings on a single calendar.

When to skip the election (and when it's a no-brainer)

Not every eligible company should file. A few situations where skipping the retroactive election is defensible:

You have material foreign R&E and limited domestic R&E. The juice may not be worth the squeeze if the recoverable amount is small relative to preparer fees.
You are sitting on large NOL carryforwards that already cover the years in question. Accelerating deductions into years that produced no tax is a paper exercise. (Though there can still be a credit-positioning benefit — model it.)
You expect a Series A close in the next 60 days. Filing three amended returns mid-diligence introduces last-minute moving parts that some lead investors will not appreciate. Coordinate with counsel.

And the situations where the election is essentially a no-brainer:

You capitalized substantial domestic R&E in 2022 and have positive taxable income across the catch-up window. This is the textbook fact pattern.
You are pre-Series A and want clean books going into diligence. Reversing the §174 capitalization simplifies the balance sheet, reduces deferred-tax complexity, and gives investors a cleaner story on cumulative R&D spend. Per Carta's cap-table data, the average seed-to-Series A timeline has compressed in 2025–2026, which makes "clean books before the term sheet" a more time-sensitive concern than it was even 18 months ago.
You have an active R&D credit position and can confidently elect §280C(c)(2) to your benefit. The two elections work together; running them as a package is where the real money lives.

What to do in the next 30 days

If you are eligible and inclined to file, here is the minimum work plan to hit a mid-June filing target:

Pull the underlying R&E balances. Reconstruct your capitalized §174 schedule for 2022, 2023, and 2024 — original capitalized amount, amortization taken to date, remaining unamortized balance. If your books did not cleanly track this, rebuild it from payroll and contractor records before you talk to a preparer.
Confirm your 2025 gross receipts position. The $31M test runs against the three years ending with 2025. If 2025 is still in close, get to a defensible number now.
Run the catch-up model. Federal + state, with and without §280C(c)(2), against your actual 2022–2024 returns. This is the analysis that tells you whether to file at all.
Decide the §280C(c)(2) position. Document the reasoning. If you have an existing election in force, the decision is whether to revoke; if you do not, the decision is whether to make one.
Engage a preparer by mid-May. Three amended returns plus the Rev. Proc. statement plus the §280C election is real work. You are not the only small business filing this election this summer — preparer capacity will tighten.

If you are pre-revenue or revenue-stage with meaningful domestic R&D spend and you have not yet run this analysis, this is the kind of project that pays for itself many times over in a single filing cycle. Invisible's fractional CFO and controller services include §174A modeling, §280C(c)(2) analysis, and coordination with your tax preparer on the amended returns. The window closes the week of July 6, 2026 — let's get on a call in the next two weeks if you want this filed cleanly.