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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

#251

Post by hasty_pudding »

jjav wrote: post #205
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…

A lot of politics consists of quietly creating problems and then loudly coming in with tons of press coverage to solve it later so you look good and get reelected. I wish there was a good way to prevent such behavior.

unrelated to anything in this thread but I've noticed a lot of tech is like that as well. lol

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

#252

Post by erik_seaberg »

atherton33 wrote: post #95
brianwawok wrote: post #84

Earlier quoted context omitted.

I amortize a server because you buy it now, it does work, then is eventually obsolete and you toss it. Does a developer keep doing work for me after he quits/dies?

The code you hired the developer to write/maintain should keep working for you after he quits/dies. Or you made a real bad investment.

If we spend $1M in year one to build a platform, we will surely spend more than $1M in year two maintaining and extending it, and keep doing that until almost the day we finally abandon it. Depreciation might make sense when the actual investment was heavily front-loaded (compared to the revenue) but in our industry it almost never is.

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

#253

Post by osigurdson »

pcthrowaway wrote: post #223
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 don't think it will stop foreign hiring for R&D, since the cost differential is often greater than the tax obligation would be. E.g. if you pay $150K for local research, you expense $15K (10%) the first year (and 30K the subsequent year). You pay taxes on $135K of 'profit'. Let's say that's $45K (I have no idea what's realistic here. Alternately you pay $130K for a dev from Canada, expense $4,333 (1/30) the first y…

I don't think many startups are thinking 15 years out. 15 months maybe.

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

#254

Post by osigurdson »

phkahler wrote: post #110
brianwawok wrote: post #76

Earlier quoted context omitted.

This isn’t like a loan where the longer the term the smaller the payments. It’s the reverse. You essentially pay taxes now on income, and can’t deduct costs for 5 or 15 years. So it’s kind of like pre-paying taxes and not getting the money back for 5/15 years. Say that you need to go borrow cash to cover the shortfall. Is it cheaper to borrow money for 5 or 15 years?

Hah I'm still trying to understand how software developer pay should be a deduction at all.

>> Hah I'm still trying to understand how software developer pay should be a deduction at all

Because it is an expense maybe?

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

#255

Post by codingclaws »

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…

Wait, isn't it an incomplete example? How much money did you start with? In other words, you had to pay the developer some salary before any revenue came in.

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

#256

Post by georgeburdell »

mensetmanusman wrote: post #63

Any accidental policy that disincentivizes R&D is stupid, but par for the course in recent history for the U.S. Major materials innovations are discovered here, but the only nations that want to actually invest and build upon them are currently in Asia. The argument was that the US wants to transition away from building things towards building software which is more profitable, and then this... This is what happens w…

Being formerly in the materials industry at an individual contributor level, I think Asia’s preponderance of materials development firms is less about what the U.S. incentivizes and more about how poor the quality of life is for the engineers compared to what they could be doing. Asian engineers will put up with a lot more B.S. than Americans, and they have low birth rates to show for it.

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

#257

Post by baazaa »

The best solution is to incentivise investment by setting its tax rate to 0. That's what Trump's cash-flow tax would have done. Higher taxes on the money printing ventures (Google ads etc.), lower taxes on start-ups and companies developing new products. That would be besides all of the other benefits like preventing profit-shifting.

Maybe if Silicon Valley wasn't so intensely ideological it would have backed the right horse when it came to tax policy. I have very little sympathy here because I think most software developer salaries really are 'development', the problem isn't the classification of developer salaries, it's that the current corporation tax is dumb.

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

#258

Post by Shaanie »

osigurdson wrote: post #250
moron4hire wrote: post #40

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.

If true, I would like to hire an infinite number of devs in Switzerland (provided the government pays the 135% of salary up front).

Not how deductions work. Say 20% corporate tax, a 100% deduction (which is the normal business expense) means you don't pay any tax. A 135% deduction means you'd get to expense 35% more, avoiding those 20% for a "total saving" of 7% compared to a normal expense.

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

#259

Post by koolba »

Any accountants here who can answer how all of this applies to a business operating in a cash basis?

Granted any sizable org won’t be, but Joe’s SaaS or Alice’s App is likely operating on a cash basis with a standard Jan/Dec fiscal year.

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

#260

Post by paulmendoza »

koolba wrote: post #259

Any accountants here who can answer how all of this applies to a business operating in a cash basis? Granted any sizable org won’t be, but Joe’s SaaS or Alice’s App is likely operating on a cash basis with a standard Jan/Dec fiscal year.

Any software dev that business does will be treated as a capital purchase. Doesn’t matter if you use cash basis or not.
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