Section 174 R&D Expensing for Freelance Developers in 2026
Immediate R&D expensing is back for 2025 returns, and small freelancers can even reclaim 2022 to 2024.
The Delivvo team· August 29, 2026 8 min read
Yes. For tax years beginning after December 31, 2024, a US-based freelance developer can once again deduct the full cost of domestic research and development in the year it is paid, instead of spreading it over five years. The One Big Beautiful Bill Act, signed on July 4, 2025, added Section 174A and reversed the 2022 rule that had quietly inflated tax bills for anyone writing software. If your revenue is small, you can also go back and reclaim the deductions you lost across 2022, 2023, and 2024. Below is what changed, whether your work counts as R&D, and how to claim it. None of this is tax advice, so run your own numbers past a CPA before you file.
What Section 174 broke, and what Section 174A fixed
Start with the damage, because it explains why this matters. Beginning in 2022, the Tax Cuts and Jobs Act version of Section 174 forced every business to capitalize research and experimental (R&E) costs and write them off slowly: domestic costs over five years, and foreign costs over fifteen, regardless of business size. It hit sole proprietors and one-person studios exactly the same as large firms. Worse, it swept in software. The TCJA amended Section 174 to include all software development costs as R&E, so a freelancer who never heard of the R&D credit was suddenly caught by the rule anyway.
Here is what that looked like in practice. Say you spent of your own time and tools building a product in 2022. Under the old immediate-expensing rule you would deduct the whole that year. Under the 2022 capitalization rule you deducted it over five years, and the first-year half-year convention meant roughly came off your taxable income that year. Your cash was gone, but the deduction was not. Plenty of developers paid tax on income they had already spent.
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Section 174A ends that for domestic work. It restores immediate expensing of domestic R&E for tax years beginning after December 31, 2024, and it is permanent, with no sunset date.
Does a solo freelance developer's work count as R&D?
For software, often yes. Section 174 and the new Section 174A both treat software development as a research or experimental expenditure, so the label does not require a lab coat or a patent. If you are designing, coding, and testing software or a product, the direct costs of that work can be domestic R&E: the contractor labor you pay, cloud and testing bills, and the tools tied to the build.
The nuance is where the money hides. Section 174 is broader than the Section 41 R&D credit, which has a strict four-part test. You can have R&E under 174 without qualifying for the credit. What Section 174 does not cover is routine service delivery: applying existing tools to a standard client brief, running a website, or ordinary business admin. The real question is whether you are developing or improving software, versus delivering a service that happens to involve a keyboard.
Freelance developer typing at a laptop with a notebook on the desk
There is genuine ambiguity for contractors here. If you build software for a client, is that you developing software for Section 174 purposes, or is it just the cost of the service you sell? Different facts point different ways, and this is precisely the judgment call a CPA is paid to make. Do not guess on a five-figure deduction.
What you can deduct on your 2025 and 2026 returns
For 2025 onward, the default is simple: deduct your domestic R&E in full in the year you pay it. If you would rather spread it, you can elect under Section 174A(c) to capitalize and amortize the amount over a period of not less than 60 months, starting when you first get value from the work. Most freelancers will just take the immediate deduction and move on.
Then there is the leftover balance from 2022 to 2024 that you were still amortizing. Grant Thornton lays out three ways to clear it: keep amortizing over the remaining period, deduct the entire remaining unamortized amount in your first tax year beginning after December 31, 2024, or spread that remaining amount ratably across 2025 and 2026. If you want the cash back sooner, taking it all in 2025 is the aggressive choice; splitting it over two years smooths the benefit.
Your wider return still has to make sense around this. R&D expensing is one line among many, so read it alongside your full freelance tax picture and the separate rules for writing off gear under Section 179.
The retroactive small-business election (2022 to 2024)
If you are a small business, you can go further and treat 2022 through 2024 as if 174A had always applied. Eligibility runs on the Section 448(c) gross receipts test: average annual gross receipts of $25 million or less, inflation-adjusted to $31 million for 2025. Almost every solo freelancer clears that without thinking about it.
The mechanism is an amended return for each affected year, deducting the R&E you had been forced to capitalize. The deadline is firm. You file the amended returns by the earlier of July 6, 2026, which is one year after enactment, or the normal statute of limitations for that year. Miss it and the retroactive door closes, though you keep the going-forward options above.
Reviewing tax paperwork with a calculator and pen at a desk
One trap to flag for your accountant: if you also claimed the R&D credit in those years, applying 174A retroactively means reducing your deduction by the credit under Section 280C, or making a late election to take the reduced credit instead. This is where a CPA earns the fee. It is not a DIY afternoon.
How to actually claim it
The going-forward switch to expensing is an automatic accounting method change. Under the IRS procedural guidance in Revenue Procedure 2025-28, you can file a statement in lieu of a full Form 3115 with your return, so there is no separate duplicate filing to send in.
For the small-business retroactive route, you attach an election statement labeled "FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28" and file your amended returns inside the July 6, 2026 window. Whichever path you take, keep contemporaneous records: what you built, your hours, contractor invoices, and cloud bills. Documentation is what survives a question from the IRS, and reconstructing it two years later is miserable.
If you are still deciding how to structure the business that holds all this, the entity choice for freelancers interacts with your deductions too, so it is worth reading alongside this.
What still gets amortized: foreign work
The immediate write-off is for domestic R&E only. If the development happens outside the US, or you pay overseas contractors to do it, those foreign R&E costs still have to be capitalized and amortized over 15 years. That split is easy to miss if you subcontract dev work offshore. Keep your domestic and foreign development costs in separate buckets in your books, because the tax treatment is not the same and the difference compounds over years.
Delivvo gives freelance developers one branded portal for proposals, contracts, file delivery, and invoices, so the income and cost trail behind every build is already clean when you or your CPA separate deductible R&D from routine client work. Clients pay you directly through your own gateway, and Delivvo takes 0% of it. See how it works
Frequently asked questions
Do I need to claim the R&D credit to deduct R&D costs?
No. The Section 174 and 174A rules on deducting or amortizing R&E stand on their own, separate from the Section 41 credit. That is exactly why the 2022 amortization rule caught so many developers who never touched the credit. The credit is optional; the way you treat the deduction is not.
I'm a sole proprietor on Schedule C. Does this apply to me?
It can. Section 174A does not care about your entity type, so a Schedule C freelancer who develops software can deduct domestic R&E the same way a company can. The harder question is which of your costs are genuine development versus routine service delivery, and that is worth a short conversation with a CPA.
Can I really amend my 2022 return in 2026?
If you qualify as a small business, under $31 million in average gross receipts, you can make the retroactive election, and the amended returns are generally due by the earlier of July 6, 2026 or that year's statute of limitations. Miss that window and you lose the retroactive option, although you can still recover leftover amounts going forward.
What if some of my dev work is done by an overseas contractor?
Those foreign R&E costs stay on the old track: capitalize and amortize over 15 years. Only domestic R&E qualifies for the immediate deduction under 174A. Keep domestic and foreign costs separated so the two do not get blended on your books.
The takeaway
The 2022 rule that punished builders is gone for domestic work. From 2025 you expense your US development costs in full again, and if you are small, you can claw back 2022 through 2024 by amending before the July 6, 2026 deadline. The rules are friendly to freelancers again. The money now sits in one place: the line between developing software and just doing the job. Get your specific facts in front of a CPA before you file, and keep the records that back up whichever side of that line you land on.
