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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

#41

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 gre…

> Some companies apparently have already been amortizing salaries for a while in anticipation of this (eg: Google) > Given that this also greatly punishes outsourcing Anyone help me understand these more? My understanding was that instead of deducting the costs of paying software devs the year it happened, it will be spread over 5 years. Which leads to a bigger tax bill now, and benefits bigger companies with deeper…

It won't push people to outsourcing, because the same code change requires 15 year amortization for foreign R&D expenditures.

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

#42

Earlier quoted context omitted.

>> 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.

They're talking about incorporating in Switzerland, which allows 135% deduction for R&D costs. Yes, Switzerland pays you to run a startup.

But it is difficult to fire them which is a big problem for tech companies where hiring and firing are common

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

#43
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.

Especially since it seems like you can spread it out over 15 years, 3 times as long, if you have overseas devs.

>These costs have to be capitalized and amortized over 5 years – or 15 if labor is done outside of the US.

I’m not an accountant so maybe I’m reading that wrong, but if so that’s insane.

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

#44

Earlier quoted context omitted.

>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?

Do your builder developers build the same thing over and over again like builders who build identical houses over?

I get the point but software really is different. Rarely ever are you building the same thing over, both from a “structural” or “architectural” perspective and from a functional perspective.

If your builders are creating a brand new blueprint for every house /structure and designing everything from scratch then I think it’s more similar, probably closer to commercial property builders with large structures.

Now under that perspective, I still don’t exactly understand why you’d treat labor cost deductions differently. Maybe the fact that these more complex products and services being built have higher return potential? I don’t know, I’m searching for a rational reason.

But, I do disagree treating software like something as commodified as many forms of labor. Someday we may get to that point with simple principles and procedures to follow, albeit technically, but we’re not there yet. At higher levels that may not be much “research” that’s needed but where the rubber meets the road, your engineers are checking to see what exists and doesn’t, designing new solutions to fill gaps in between, testing things, digging into previous things that don’t work and trying to fix them… it’s research.

As we continue to move more professions to an intellectual economy, many roles are becoming more and more like this, not just software. I’d say loading more roles and expectations on labor is also creating this situation where we’re asking more people to do more things they don’t know or can’t possibly know everything at a proficient level and the things we’re asking them to do don’t have solutions that can be written down and quickly referenced when needed as a simple recipe to follow. If you make the recipe general enough (e.g if a problem arises, find a solution and fix it at a low cost) then one might point to such highly generalized solutions and pretend it’s a solved problem but it’s not, it lacks any useful concretization. “You're not doing research, I told you ‘if a problem arises fix it’! There’s nothing to research you just do that!” doesn’t cut the muster.

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

#45

Earlier quoted context omitted.

They're talking about incorporating in Switzerland, which allows 135% deduction for R&D costs. Yes, Switzerland pays you to run a startup.

But it is difficult to fire them which is a big problem for tech companies where hiring and firing are common

Use international contractors ? Or is the deduction for local devs only ?

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

#46

Earlier quoted context omitted.

They're talking about incorporating in Switzerland, which allows 135% deduction for R&D costs. Yes, Switzerland pays you to run a startup.

But it is difficult to fire them which is a big problem for tech companies where hiring and firing are common

I hear this a lot and it's difficult to reconcile with my experience. Every US company I've worked at (and that's always been in at-will states) has not made it easy to get rid of people. Even people with woefully bad records of losing money every year and having multiple harassment complaints filed against them were kept for nearly a decade. With one exception (I personally got fired from a tiny startup because I refused to commit timesheet fraud for the CEO), the stories I've heard of the lengths that European companies have to go through to fire someone sound exactly the same to the processes I've seen at all of my employers.

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

#47

> 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…

As an employee, if I hear my CEO/CFO saying how this law makes it hard to employ SWEs, I will be likely to worry about my job.

I pay attention to news coverage and interviews of my company execs, whatever they’re talking about. I don’t pay attention to all other company execs talking about tax law.

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

#48
post #23

Earlier quoted context omitted.

> 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.

> However, my CPA said software engineer salaries are only categorized as R&D before the product is launched

I wonder how this one will pan out.

Let's say you build out a landing page with a way for folks to input their email address which demonstrates interest in your product. You've released it and people can sign up.

Did it launch? You could make case it did and now you're iterating on the product from here on out. You've launched phase 1 of the product which is probing for demand.

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

#49

Earlier quoted context omitted.

>> 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.

They're talking about incorporating in Switzerland, which allows 135% deduction for R&D costs. Yes, Switzerland pays you to run a startup.

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