241–250 of 369 posts
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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.
What if I'm doing mostly "maintenance and operations", not "R&D"? I still need those servers and software...
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I am aware of that part, yeah. It's a shitty change, one hundred percent, and I'm glad to see folks like Wyden trying to unwind it. At the same time, I've owned small software businesses before, and I've started/not started new ones based on whether I thought it would work out. Where I am unclear is what sorts of business plans, on day zero, would be suddenly nonviable when it was viable before, so suddenly overwhelm…
imagine in year 1 you grossed 100k, spent 200k on salaries, but the new irs rules say you owe taxes on 60k of profits. To slightly simplify: it forces startups to pay taxes on profits that only exist on paper, with cash that is now much more scarce
For a clearer picture on this it’s helpful to include the actual tax amount. With a corporate rate of 21%, the tax would be about $12K.
Now that’s not zero, but it better shows the actual cost born in year one under this plan.
The later years are important as well. As profits continue to flow in, the rest of the cost can be deducted from it. So it doesn’t disappear.
Though you do lose a bit from the nature of present nominal being inherently worth more than future nominal amount. With todays higher rates, that’s an even larger factor.
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You MUST spread it over 15 years, which is brutal for most companies and will mean no longer hiring any foreign R&D or software development contractors.
Why is spreading something out over 15 years harder than spreading it out over 5?
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Is it true that they are 1/5th into the pain? What about every new hire? That's the part I don't understand. It seems to discourage companies from increasing their headcount. Also, what happens when an employee leaves after 2 years? The company paid 2 years of salary but expensed only 35% of year 1 and 15% of year 2. Update: Now thinking about it, it doesn't matter if an employee leaves, since the company will expens…
You already have such amortizations for a lot of things. In some cases this even gives you possibilities to improve your tax burden. It just means that you cannot deduct it all in one year. If you downsize a company to zero employees you still get to subtract salaries for a few more years against your profits. It will set different incentives wiring wise and I’m not convinced they are good ones, but from this rule so…
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I am aware of that part, yeah. It's a shitty change, one hundred percent, and I'm glad to see folks like Wyden trying to unwind it. At the same time, I've owned small software businesses before, and I've started/not started new ones based on whether I thought it would work out. Where I am unclear is what sorts of business plans, on day zero, would be suddenly nonviable when it was viable before, so suddenly overwhelm…
imagine in year 1 you grossed 100k, spent 200k on salaries, but the new irs rules say you owe taxes on 60k of profits. To slightly simplify: it forces startups to pay taxes on profits that only exist on paper, with cash that is now much more scarce
Possibly the most unpopular argument of all: do not comply. Change your employees job titles and/or tax classifications if you have to. Whatever it takes to say "these are salaries, not R&D". If you're big enough they'll notice, but for a 10-person company the risk of a bad audit beats certain bankruptcy.
Maybe unpopular but I assume this is just what is going to happen. I remember awhile back when I was visiting Ireland one of the tours mentioned that modern whiskey and beer in Ireland came about because of taxes. I wish I could remember more details but the story went along the lines of each time a new tax on some type of alcohol happened the producers would reclassify their beverage or change the method which produ…
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.
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…
> It's not enough. I was geared up to start a business this year; this, specifically, has put the brakes on it. I've read a little about this, but not a lot. How has this put sufficient drag on starting a business that it's impractical to go from zero to one? Is there an aspect of the business model that's particularly impacted?
For mature companies, it all evens out, because you write off the costs over 5 years and it's just a blip. You can just borrow that money as a corporate bond, creating a real but manageable cost. For growing companies, it's forcing you to set aside money now (in the form of a tax deduction) you won't get back until year 5. So your burn rate is going up. And, unlike a mature company where the cost decreases over time (by year 5 it was a one time blip), that's only to the degree your salary costs have been stable for five years. Every time you scale up engineering staff, it puts you more in the hole for another five years.
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/
So far as I can find the last time Congress bothered to pass a budget was 2016 with the prior one in 2010. The government has been funding itself instead with “continuing resolutions” which pretty much just continue spending as the prior year modulo marginal changes. Incidentally this is why federal deficits have exploded since 2010: the financial crisis “one time” trillion dollar stimulus has been continued every ye…
The last time Congress passed a budget was for last fiscal year (FY 2023):
https://www.congress.gov/bill/117th-congress/house-bill/2617
It was about three months late, but they passed it. This year's is currently at least about four months late, and the federal government is currently operating under a continuing resolution that will expire in March. However, full-year continuing resolutions are rare: the budget bills are usually passed, but passed late.
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>> 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.