Thousands of small businesses are struggling because of R&D amortization • Hacker News Board

Re: Thousands of small businesses are struggling because of R&D amortization

#11

Post by tester756 » Sat, Jan 20, 2024, 12:55 PM UTC

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

I used to have similar mindset about this like you, but let's read what's an actual definition of R&D:

>Research and development is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones.

>R&D activities differ from institution to institution, with two primary models of an R&D department either staffed by engineers and tasked with directly developing new products, or staffed with industrial scientists and tasked with applied research in scientific or technological fields, which may facilitate future product development. R&D differs from the vast majority of corporate activities in that it is not intended to yield immediate profit, and generally carries greater risk and an uncertain return on investment.

and as you see "R&D department either staffed by engineers and tasked with directly developing new products, or staffed with industrial scientists and tasked with applied research in scientific or technological fields, which may facilitate future product development"

developing new products falls under R&D

Re: Thousands of small businesses are struggling because of R&D amortization

#12

Post by pavlov » Sat, Jan 20, 2024, 12:56 PM UTC

Here’s an article with more info about what changed and why:

https://www.theregister.com/2024/01/12/us_tax_research/

This change was actually part of the Trump tax cuts in 2017. It was delayed by five years as an accounting trick to make the bill look better at the time: the tax cuts’ projected long-term impact on the deficit didn’t look quite so bad when they tacked on a bunch of tax increases that would take effect in the distant future of 2022 (and with the assumption that this could of course be repealed if Republicans stayed in power).

Why target software companies? I guess because their owners look more like Democratic voters than, say, real estate investors who benefit from massive tax breaks that remain untouchable.

Re: Thousands of small businesses are struggling because of R&D amortization

#13

Post by john-radio » Sat, Jan 20, 2024, 1:02 PM UTC

itsoktocry wrote: post #9

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

> Precisely. They didn’t think of their work as R&D because it was not R&D. Frankly, they should have seen this coming Don't you have this backwards, or do I? Software development is now going to be treated as R&D, which means that costs have to be amortized. That's not an tax advantage, it's a disadvantage. All the other businesses you list get to expense their labour costs. But we agree, software dev should not be…

Yes, my (lay) understanding is that MasterYoda has it backwards and your explanation is correct.

Re: Thousands of small businesses are struggling because of R&D amortization

#14

Post by Shrezzing » Sat, Jan 20, 2024, 1:03 PM UTC

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

> I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for.

Why? There's a clear relationship between R&D spend and economic growth. This is including R&D spend on non-scientific endeavours like commercial products + processes, which the majority of non-maintenance software work falls into.

Estimates vary, but I've never seen a cost/benefit analysis of unrestricted R&D that finds anything lower than a $2 return for every $1 spent in unrestricted R&D.

Re: Thousands of small businesses are struggling because of R&D amortization

#15

Post by marcus0x62 » Sat, Jan 20, 2024, 1:04 PM UTC

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

> Comment from MasterYoda900

> The whole thing backwards, he gets.

Not too surprising, I guess.

Re: Thousands of small businesses are struggling because of R&D amortization

#16

Post by foooorsyth » Sat, Jan 20, 2024, 1:05 PM UTC

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

>software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development

Have you forgotten the D in R&D? Software engineers are building the product. That’s development.

What do you mean by “genuine scientific research”? I suppose you think ML researchers aren’t doing “genuine science” because they wear hoodies instead of lab coats?

Re: Thousands of small businesses are struggling because of R&D amortization

#17

Post by alephnerd » Sat, Jan 20, 2024, 1:05 PM UTC

itsoktocry wrote: post #4

> A handful of these small business owners have bravely spoken to journalists from the Wall Street Journal and CNBC[...]But the vast majority are hesitant to speak to journalists as it might give their competitors free intel or make their employees nervous that they might lose their jobs. This seems a tad overblown? "brave", "free intel"? Why would we need to hear the same thing from thousands of small businesses? Th…

> Why would we need to hear the same thing from thousands of small businesses

That's how lawmakers prioritize work.

It seems some kind of lobbying organization for early stage companies might be needed - maybe some think tank funded by a couple early stage focused VCs

Re: Thousands of small businesses are struggling because of R&D amortization

#18

Post by the_mitsuhiko » Sat, Jan 20, 2024, 1:09 PM UTC

MasterYoda900 wrote: post #5

I don’t see why software should receive special treatment when 99.99% of software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development, which R&D tax advantages should be reserved for. > Changes to R&D amortization were a rude surprise to them, as they'd never had to amortize software development before, and didn't think of the work they do as R&D. Pr…

Note that the current tax code implies that all software development requires amoritzation of salaries. This is as far as I can tell internationally quite unique. Usually you can write off all salaries as expenses.

I don't have a fully formed opinion on this aspect of the taxation, but it's pretty evident that this is out of the norm.

Re: Thousands of small businesses are struggling because of R&D amortization

#19

Post by acdha » Sat, Jan 20, 2024, 1:09 PM UTC

FrustratedMonky wrote: post #6

? Was there a change in the tax code? Then why not provide some links, it isn't secret then? Why wouldn't people be able to talk about it. What is brave about discussing a tax policy? There was not context given about what it is, what is is causing.

This is a much better article: basically these companies are paying for the tax cut Republicans gave the to the top bracket in 2017:

> In 2017, then-President, Donald Trump, signed the 2017 Tax Cuts & Jobs act, which overhauled tax codes and reduced tax – for example, it reduced the top tax bracket from 39.6% to 37%. To make the bill pass strict budgetary rules, the Senate used a process called reconciliation: adding in tax code changes that delayed tax increases. These delayed increases “balanced out” the tax reduction.

https://newsletter.pragmaticengineer.com/p/the-pulse-75

Re: Thousands of small businesses are struggling because of R&D amortization

#20

Post by the_mitsuhiko » Sat, Jan 20, 2024, 1:14 PM UTC

Since this is already hanging around for an entire tax year a lot of companies are 1/5th into that pain. If this does not get changed in the next few months it would not surprise me if this becomes the new norm. Which would also be quite interesting to see how that would play out. Some companies apparently have already been amortizing salaries for a while in anticipation of this (eg: Google). Given that this also greatly punishes outsourcing I would not be surprised if at least that aspect will remain even if some of the rest will be rolled back.