Five Figure Refunds on Development?
If your business paid for software dev between 2022 and 2024, the IRS may owe you a five-figure refund
A few months ago I came across a paragraph in the One Big Beautiful Bill Act that I couldn’t quite believe.
Buried in the tax law signed in July 2025 is a one-time provision letting small businesses (anyone with under $31 million in average gross receipts) go back and amend their 2022, 2023, and 2024 returns to recover money they overpaid because of a tax rule called Section 174. The window is open for one year. It closes Monday, July 6, 2026.
The amounts at stake aren’t trivial.
For a small business that paid material money to developers or technical contractors during those three years, the recoverable refund routinely lands between $20,000 and $80,000. For ecommerce operators mid-replatform, indie game studios with multi-person teams, or dev agencies that grew their payroll, it’s often considerably more.
I started digging into this because the math seemed strange to me. If there are five- and six-figure refunds sitting on the table for a huge swath of small businesses, why isn’t this everywhere? What I found, talking to operators and CPAs across the country, is that most people don’t know it exists. That’s what this post is about.
Get To the Point, Michael!
First, use the calculator to get a rough estimate of what you might be owed. Then, if it looks significant, get my refund sprint kit and make sure you get your money back.
What Section 174 actually did
Section 174 of the Internal Revenue Code governs “research or experimental” expenditures. For seventy years it was uncontroversial. Businesses could deduct R&E spending in the year they spent it, full stop. Then the 2017 Tax Cuts and Jobs Act changed it, and starting in 2022, every U.S. business that paid for software development was suddenly required to capitalize those costs and amortize them over five years instead.
Imagine paying a developer $200,000 in 2023 to build a custom integration between a Shopify store and a warehouse management system. In a normal world, the business would deduct that $200,000 from 2023 revenue and pay tax on whatever was left. Under §174, the business got to deduct $20,000 in 2023, then $40,000 each year for the next four years. Meanwhile the full $200,000 was already gone from the bank account.
For three years, businesses paying for software work got taxed as if their actual cash expenses didn’t exist. For some operators the bill was painful. For others it was existential. There are documented cases of small businesses owing more in taxes than they cleared in net income, because the §174 phantom income was so much larger than their actual profits.
Who got hit
The rule was framed as a fix for big tech and pharma R&D, but the way it was written, it captured every kind of paid software development. Custom Shopify themes. Magento builds. WooCommerce plugins. Internal CRM customizations. Automation scripts written by contractors. AI tool integrations. Custom portals. ERP customization. Mobile app development. Game development. The text just said “software development,” and the IRS interpretation was broad.
A short list of industries that quietly carried a lot of §174 exposure:
- Ecommerce operators with custom dev work (Shopify Plus, Magento, WooCommerce)
- Indie game studios paying engineers and contractors
- Small dev agencies and consultancies (their own payroll counted as R&E)
- Small SaaS teams with contractors or part-time engineers
- Medical and dental practices with custom EHR integrations
- Real estate and proptech operators with custom CRM or portal work
- Restaurant operators with custom POS, ordering, or loyalty builds
- Manufacturing shops with custom ERP customization
- Law firms with custom case management builds
If a business paid someone to write code between 2022 and 2024, it almost certainly took a hit. The damage may not have appeared as a separate line item — it just showed up as “the tax bill was way higher than expected.”
The fix, and the fine print
In July 2025, the One Big Beautiful Bill Act killed §174 capitalization going forward. New §174A, effective for tax years beginning after December 31, 2024, restores immediate deduction for domestic R&E, back to pre-2022 treatment.
But the bill also did something most operators don’t know about. It quietly opened a one-time retroactive election under §70302(f)(1)(A). Eligible small businesses (those with average gross receipts under $31 million over the prior three years) can go back and amend their 2022, 2023, and 2024 returns to apply §174A retroactively. The IRS sends a check for the difference.
The procedural guidance landed in August 2025 as Revenue Procedure 2025-28. It’s 16 pages of dense Treasury prose. The deadline to file the election is the earlier of (a) Monday, July 6, 2026, or (b) the §6511 statute of limitations for the specific year being amended.
For most calendar-year filers, the §6511 SOL has already closed 2022 (it expired April 15, 2026 — surprise). But 2023 and 2024 are still in play.
Why most CPAs haven’t mentioned it
When I started asking small-firm CPAs about this election, the answers were remarkably consistent. The election sits in a procedural niche — it requires a specifically-titled statement, careful §280C credit-coordination math, and state-by-state non-conformity analysis (California, New Jersey, North Carolina, and several others either don’t conform to §174A or have their own complications). For a small firm that might see only one or two eligible client situations, it isn’t worth the time to learn the procedural details just-in-time.
None of the CPAs I talked to were lazy or dishonest. They were realistic about their bandwidth and their value-per-hour. The election simply isn’t on the standard checklist.
The specialist firms that do handle these amendments — Pilot, Strike Tax, alliantgroup — typically charge 20% to 40% of the recovered refund as a contingency fee. On a $50,000 refund, that’s $10,000–$20,000 for documentation that any competent generalist could file in three or four hours if they were handed the right materials.
That gap between the generalist CPA who won’t learn the procedure on a one-off basis, and the specialist firm whose pricing model only works at scale — is where most eligible small businesses end up doing nothing.
How to know if this applies to your business
Three quick filters:
- Did your business pay for software development in 2022, 2023, or 2024?
This includes contractor invoices, in-house developer salaries, agency fees, automation consultant work, AI tooling costs used during development, and cloud infrastructure tied to dev environments. If the answer is “we paid less than $50,000 total across those years,” the math probably won’t work even if you qualify. If it’s “we paid $200,000+ in any single year,” there’s likely a meaningful refund waiting. - Are your average gross receipts under $31 million for the three taxable years before 2025?
Most small businesses, indie studios, and bootstrapped operators are well under this. If you’re VC-backed and post-Series B with $30M+ ARR, talk to your accounting team — different rules apply. - Did your business actually file federal returns for 2023 and 2024?
The retroactive election requires you to have filed something to amend. If you’re behind on filings, you have a different problem to fix first.
If you can answer yes to all three, your business very likely qualifies.
The deadline
Monday, July 6, 2026.
That’s not “the tax year ends.” That’s “after this date, the retroactive election is unavailable forever for these years.” There is no extension, no late filing, no second chance. Whatever can be recovered for 2023 and 2024 has to be claimed by then.
If you’ve read this far and any of it sounds like it might apply to your business, here’s what I’d do this week:
- Run the calculator.
It’s free, no email required, takes about 90 seconds. It tells you whether your business qualifies and gives a rough refund range based on dev spend by year. - Pull your records.
Payroll reports for any developers or engineers on staff. Contractor invoices. Cloud infrastructure receipts. AI tooling subscriptions used during development. - Email your CPA.
Use the phrase “Section 174A retroactive election under Rev. Proc. 2025-28, Section 3.03.” If they tell you they’re at capacity or it’s not their specialty, that’s normal — but it doesn’t have to be a dead end.
If the number it gives you is meaningful, do something about it. If it’s not, you’ve spent 90 seconds. Either way, you’ll know — which is more than nine out of ten operators in your position can say right now.
— Michael
This is not tax or legal advice. Eligibility for the §174A retroactive small-business election depends on facts specific to your business, including average gross receipts, the years for which the §6511 statute of limitations is still open, and your entity type. Review your situation with a qualified CPA or tax professional before filing.
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