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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

#231

Post by behringer »

pclmulqdq wrote: post #91
addicted wrote: post #55

Earlier quoted context omitted.

They’re calling this a business priority for the Republicans when it was a Republican House, Senate and President that passed this measure. That’s a bit too “must make it seem bipartisan” when there is a clear partisan direction. Even when this fix is passed, it will be voted for unanimously by Democrats and only a small fraction of Republicans will vote for it. Explain again to me how that makes it a Republican prio…

You should note that these sorts of tax law changes are largely a revenue game: Someone wants to cut some other tax, so they find a place to raise taxes elsewhere without thinking about the consequences. But also, the vast majority of people employed by R&D-heavy companies are Democrats, so it's hard to impute motive one way or the other.

Makes sense. If there's anything Republicans hate the most it's the little guy.

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

#232

Post by jkelleyrtp »

Can someone help me understand?

Let's just say I started a company last year. I sell software and made $100k revenue this year. I hired someone for $100k to help build that software. I have zero dollars left in the bank at the end of the year.

According to 174 I can only amortize that $100k over 5 years, not all at once. So now I have to pay taxes on $80k profit. I have no money in my bank account, how can I pay any taxes at all?

It's not like I'm going to fire my engineer, he does feature and maintenance work. Let's say that next year my business stays the same. 100k in 100k out. I still have no money in the bank and have to pay taxes on $80k profit, again?

What??

Every little startup in Silicon Valley makes software, spends a lot on salaries, and is barely breakeven. How... am I expected to run a business like this?

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

#233

Post by lizhang »

jodacola wrote: post #200

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 doe…

What does the delay in [0] mean for the stories in the twitter thread? Would they be able to get their tax payment + penalty back? Or would this delay only affect the 2023-2025 tax years?

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

#235

Post by Klonoar »

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…

My understanding is that Google just always did that, it wasn’t in anticipation of the changes here.

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

#236

Post by flutas »

jkelleyrtp wrote: post #232

Can someone help me understand? Let's just say I started a company last year. I sell software and made $100k revenue this year. I hired someone for $100k to help build that software. I have zero dollars left in the bank at the end of the year. According to 174 I can only amortize that $100k over 5 years, not all at once. So now I have to pay taxes on $80k profit. I have no money in my bank account, how can I pay any…

Not to go all achstuushually on you, but it's even worse.

You can only deduct 10% the first year. Every year after is 20%, then year 6 is a "make up" of the last 10%.

So year 1 would be $90k now not $80k.

> Because of the tax code’s accounting conventions, domestic firms ultimately have to deduct 10 percent of costs in year one, 20 percent of costs each year in years two through five, and the remaining 10 percent of costs in year six.

[0]: https://taxfoundation.org/blog/rd-amortization-impact/

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

#237

Post by wmf »

jkelleyrtp wrote: post #232

Can someone help me understand? Let's just say I started a company last year. I sell software and made $100k revenue this year. I hired someone for $100k to help build that software. I have zero dollars left in the bank at the end of the year. According to 174 I can only amortize that $100k over 5 years, not all at once. So now I have to pay taxes on $80k profit. I have no money in my bank account, how can I pay any…

You're understanding it correctly. The "answer" is that you either take VC investment, borrow money to pay the taxes (in this economy??), or go out of business.

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

#238

Post by w4 »

gavinhoward wrote: post #144
mjwhansen wrote: post #138

Earlier quoted context omitted.

Unfortunately, this doesn’t erase the impact. This applies beyond salaries to all resources used for what 174 considers R&D. Servers, software, the desk chair you sit on to do development —- all have to be amortized under 174.

Those are physical things that had to be amortized anyway, and I had planned for that.

That's not correct through '27: https://tax.thomsonreuters.com/en/glossary/bonus-depreciatio...

It also applies to e.g. saas used for software development, which never would be depreciated over time previously. So your paid GitHub account? Amortize it over 5 years.

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

#239

Post by erik_seaberg »

jdksmdbtbdnmsm wrote: post #222

Why would I be on the side of someone willing to go through all this trouble just to avoid paying American wages? Frankly, I would prefer you not start a business or do it elsewhere.

This affects all US software companies, even when you hire US employees.

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

#240

Post by wait_a_minute »

the_mitsuhiko wrote: post #113
jdjskiaka wrote: post #38

Earlier quoted context omitted.

> 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…

For foreign contractors the time frame is 15 years instead of 5.

Wouldn't this improve things for domestic contractors and domestic developers?
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