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

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

#21

Post by nerdponx »

kleinsch wrote: post #8
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 think you understand what they’re discussing. If you run a plumbing company, make $100K in revenue, pay a plumber $100K, you have no profits, owe no corporate taxes. If you run a software company, make $100K in revenue, pay a software engineer $100K, section 174, which just went into effect recently, means you now owe taxes on $90K of profit. This is because you must spread dev costs over 5 years, you can’t d…

I assume you meant 80k instead of 90k?

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

#22

Post by [deleted] »

kleinsch wrote: post #8
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 think you understand what they’re discussing. If you run a plumbing company, make $100K in revenue, pay a plumber $100K, you have no profits, owe no corporate taxes. If you run a software company, make $100K in revenue, pay a software engineer $100K, section 174, which just went into effect recently, means you now owe taxes on $90K of profit. This is because you must spread dev costs over 5 years, you can’t d…

[deleted]

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

#23

Post by welder »

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…

MasterYoda900 has it backwards. However, my CPA said software engineer salaries are only categorized as R&D before the product is launched. So this only affects new startups pre-launch... if my CPA is correct.

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

#24

Post by mhluongo »

acdha wrote: post #19
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…

You're getting down voted for sounding partisan I suspect, but regardless of the politics, you're absolutely right. That bill was a huge change across the US tax system.

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

#25

Post by anothernewdude »

foooorsyth wrote: post #16
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?

That's a different word that is merely spelt the same.

My programmers build software.

Should builders building a house amortise their development work?

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

#26

Post by Retric »

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…

They have it backwards in two ways. Software isn’t Research, but Software Developers are generally doing Development ie improving existing products or developing new ones.

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

#27

Post by osigurdson »

kleinsch wrote: post #7

More detail with math here. Lawmakers are discussing delaying these changes for a few years and/or allowing deductions for domestic employees, but all depends on signing a budget, which is never certain. https://blog.pragmaticengineer.com/section-174/

>> let go of 23 engineers employed in India

>> lots of devs in Switzerland starts to make a lot more sense, especially now.

This seems contradictory.

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

#28

Post by acdha »

mhluongo wrote: post #24
acdha wrote: post #19

Earlier quoted context omitted.

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…

You're getting down voted for sounding partisan I suspect, but regardless of the politics, you're absolutely right. That bill was a huge change across the US tax system.

Yeah, it’s an election year so even a literal statement of fact is going to be downvoted by some people. Hopefully at some point they’ll have an epiphany about whether they should self-identify with a party so strongly when an accurate descriptions of its actions feels like an attack, but I’m not as optimistic about that as I used to be.

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

#29

Post by Agathos »

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…

> Restaurants, bars, plumbing companies, landscaping companies, accounting firms, etc.?

Do any of those businesses owe taxes before they've collected their first cent of revenue? That is the situation a software startup is now looking at.

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