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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

#191

Post by ghaff »

username332211 wrote: post #184
BenFranklin100 wrote: post #181

Earlier quoted context omitted.

For one, companies will be encouraged to classify R&D as operational expenses where they can. This distorts the overall picture of the business’s fundamentals.

I was under the impression American companies already have to maintain 2 sets of books anyways. After all, the IRS doesn't use GAAP.

It's probably more than that. You have external GAAP, non-GGAP, constant currency vs. non-constant currency metrics, all sorts of internal accounting measures. With larger companies it's complicated. (Smaller companies it's more about cash flow even if they consider taxes as well.)

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

#192

Post by patmcc »

Uw7yTcf36gTc wrote: post #114
MattRix wrote: post #83

Earlier quoted context omitted.

So this year if I spend $150k on foreign research (which includes ANY software development), and then I also earn $150k in revenue: despite me having $0 in the bank, I will only be able to deduct 1/15 of that, or $10k. In other words, I’ll be taxed as if I made $140k of profit, despite me not having any actual money left over. You can see how if this was 5 years, then I could deduct 1/5 and I would be taxed on $120k…

I thought employee wages were always deducted. Is that not the case ?

Just as an aside - as a general accounting principle, no, wages are not always deducted.

The easy example is a car company, like Ford. If they buy a car factory, that is a capital asset, and the cost needs to be amortized over x years. If they decide to instead BUILD a car factory...they still end up with a capital asset, and the costs (including wages) need to be amortized over x years.

In most cases this is what companies want - they'll have revenues over x years and matching costs over x years is generally better for everyone.

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

#193

Post by [deleted] »

pclmulqdq wrote: post #121

I have said this before and attracted downvotes for it, but here goes. There are two possible arguments here to try, and I have only ever seen people lobbying against this change use the one, less persuasive argument. That argument is what I will call the "incentives" argument: that change in the rule provides bad incentives against doing R&D. This argument goes along the lines of "this will cost jobs for R&D workers…

[deleted]

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

#194

Post by ghaff »

kolanos wrote: post #189
BenFranklin100 wrote: post #182

Earlier quoted context omitted.

I bet you if the commentator you’re responding to owns a home, they take the mortgage home tax deduction.

Can't you only deduct the mortgage interest? Or are you referring to something else? The mortgage interest deduction turns out to not be very much in practice, in my experience, anyway.

It used to be a bigger deal. Yes, housing prices (in some US geos) have gone up a lot but so have standard deductions and interest rates are still relatively low historically. Absent relatively large charitable donations, big mortgage interest payments, etc., itemizing doesn't make a lot of sense for many people.

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

#195

Post by thinkerswell »

Steven-Clarke wrote: post #146

Yes Section 174 is a huge issue for US companies of all sizes. We are seeing a shift in companies and other decentralized projects explore places like Panamá. The blockchain industry is dealing with IRS, SEC and other regulatory challenges. Some companies are choosing to leave the US. There are options and advantages to operating outside the US. US timezone, a USD economy and a territorial tax system makes it easy to…

If you are a US business, it’s hard to escape the overly burdensome US taxes.

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

#196

Post by [deleted] »

ryanwaggoner wrote: post #99

If this persists, it seems like it’d make sense for many software companies to shift the development and ownership of their software outside of the US, and then pay licensing fees to those overseas subsidiaries for the use of the software, which isn’t taxed as R&D.

[deleted]

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

#197

Post by thinkerswell »

PaulDavisThe1st wrote: post #132
exabrial wrote: post #103

We need temporary relief, immediately. But long term, how about we shrink the size of the federal government? Then we don’t have to flog small businesses to death to feed the massively inefficient and wasteful machine!?

These changes came about as part of the Trump administration & Republican efforts to reduce taxation. Because you can't trivially just cut taxes (as was done in 2017) without showing how you will either make up the missing revenue or reduce spending, they threw in a time-deferred measure - the new Section 174 that "demonstrated" how the tax cuts in 2017 would be paid for in the future. It was all sleight of hand, but…

What the recent Argentinian president had proposed for his country would be a good start for the US

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

#199

Post by wrsh07 »

jdjskiaka wrote: post #38
the_mitsuhiko wrote: post #20

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…

If you're not yet profitable it doesn't matter, so you can do this accounting and once you are profitable (in five years) you'll be caught up

What the (possibly temporary) temporary law probably actually does is decrease the incentive to become profitable for the next couple of years (assuming your business is strong and you can raise another round)

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

#200

Post by jodacola »

This is a topic about which I'm very passionate. I've written my congressional representatives several times. I've posted on LinkedIn. I'm raising awareness with my close colleagues. I'm trying to beat the drum as much as I can.

There is a minor win that was just advanced in the House yesterday[0] to delay US onshore amortization through 2025 via The Tax Relief for American Families and Workers Act of 2024[1]. It doesn't touch offshore amortization.

It's not enough. I was geared up to start a business this year; this, specifically, has put the brakes on it. I've written as much to my congressional representatives. I'm doing research into what it would take to incorporate in another country, and the implications therein, if it comes to that.

I'm going to sign up to https://ssballiance.org/, as telesilla recommended.

Let's beat the drum together, folks.

[0] https://www.voanews.com/a/7448071.html

[1] https://www.finance.senate.gov/imo/media/doc/the_tax_relief_...

edit: formatting

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