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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

#261
To be fair, accelerated R&D amortization (immediate full expensing in the year the expense was incurred) is a tax loophole. Essentially, the default tax treatment of expenses is basically to take the expense same as you would treat it under GAAP, but some people (I am one of them BTW) think that we should put a finger on the scales for the case of legitimate R&D.

Now though I happen to think accelerating it is a good idea, everybody thinks their particular loophole is a good idea. To say that removing the special treatment is a policy mistake is a reasonable position to take, though opponents have a reasonable position as well (as I said I'm in favor of the special benefit). But to call this change unfair is, IMHO, unreasonable.

It's also bogus to plead ignorance as the twitter poster did: "as they'd never had to amortize software development before, and didn't think of the work they do as R&D." Their accountants sure did, because otherwise it would not have qualified for the R&D exemption. And their accountant would have to tell them what to do to make it qualify.

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

#262

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.

Bro what? Were you starting the business specifically to get these deductions? (I’m genuinely curious, sounds like a fun regulatory arbitrage.)

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

#263
post #257

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 rig…

Section 174 software changes was designed to punish blue states in order to pay for tax cuts for the wealthy so their budget would balance.

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

#264

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.

Why on earth would someone give up ownership of their product or platform to an overseas subsidiary? The risks of that are massive, especially in a setting that is more prone to conflict as of late. This would increase the risks of losing your IP entirely. If ownership and development move overseas, then you'd be giving what you have away to someone else to entrust them with the entire thing to avoid paying a bit of…

TL;DR: Engaging with decentralized organizations and open-source communities allows access to global talent and diverse perspectives, fostering innovation and resilience. This approach, focusing on collaboration over ownership, offers potential benefits in R&D and innovation, outweighing traditional models that prioritize geographical and IP constraints.

1. Global Talent and Diverse Perspectives: DAOs and open-source projects, by their nature, often operate without geographical boundaries. This allows them to hire and collaborate with talent from all over the world, bringing in diverse perspectives and expertise that can be crucial for R&D and innovation. The traditional model of keeping all operations within a single country might limit access to this global talent pool.

2. Decentralization as a Strength: Decentralized structures can offer resilience and flexibility. In a world where geopolitical tensions and conflicts can disrupt traditional business operations, a decentralized model, with no single point of failure or control, might actually reduce certain risks. Intellectual property, in this case, isn't concentrated in one jurisdiction but is part of a global network, which could mitigate the risk of loss due to regional conflicts or regulatory changes.

3. Innovation and Experimentation: The open-source and DAO model is fundamentally about experimentation and pushing the boundaries of what's possible in technology and organizational structures. By embracing these models, companies can participate in cutting-edge developments and explore new ways of working that might not be possible within the confines of traditional corporate structures.

4. Intellectual Property Considerations: While there are legitimate concerns about IP protection, decentralized and open-source models often operate on a different paradigm regarding IP. The focus is less on ownership and more on collaboration, community, and building upon shared knowledge. In many cases, the value generated isn't from the IP itself but from the community and ecosystem that develops around it.

5. Regulatory and Tax Implications: It's important to acknowledge that regulatory and tax environments are significant considerations. However, for some organizations, the benefits of global collaboration and access to decentralized structures might outweigh the simplicity of operating within a single jurisdiction.

example/ Optimism $100 Million for Developers - Announcing RetroPGF Round 3 Recipients https://optimism.mirror.xyz/37Bgum6MfTJWDuE41CH9RXSH5KBm_RCL...

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

#265

Earlier quoted context omitted.

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.

Shoot. I thought I was going to be able to absorb all of the Switzerland's wealth for a moment there.

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

#266

Earlier quoted context omitted.

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.

[flagged]

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

#267
post #261

To be fair, accelerated R&D amortization (immediate full expensing in the year the expense was incurred) is a tax loophole . Essentially, the default tax treatment of expenses is basically to take the expense same as you would treat it under GAAP, but some people (I am one of them BTW) think that we should put a finger on the scales for the case of legitimate R&D. Now though I happen to think accelerating it is a goo…

i don't know enough about tax codes and how business works to comment on the actual policy, but it sure does seem to me that changes that result in immediate and massive new liabilities are unfair.

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

#268
post #267
post #261

To be fair, accelerated R&D amortization (immediate full expensing in the year the expense was incurred) is a tax loophole . Essentially, the default tax treatment of expenses is basically to take the expense same as you would treat it under GAAP, but some people (I am one of them BTW) think that we should put a finger on the scales for the case of legitimate R&D. Now though I happen to think accelerating it is a goo…

i don't know enough about tax codes and how business works to comment on the actual policy, but it sure does seem to me that changes that result in immediate and massive new liabilities are unfair.

I think the big problem with this is just the accounting burden: now even salaried programmers have to track hours between greenfield and maintenance development.

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

#269
post #12

Here’s an article with more info about what changed and why: https://www.theregister.com/2024/01/12/us_tax_research/ This change was actually part of the Trump tax cuts in 2017. It was delayed by five years as an accounting trick to make the bill look better at the time: the tax cuts’ projected long-term impact on the deficit didn’t look quite so bad when they tacked on a bunch of tax increases that would take effect…

Yeah, the "Coastal liberal elite" is a popular boogeyman. I mean, look at the actual "elites", don't see too many Bernie-bros alongside Musk, Thiel, and the Zuck.

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

#270
post #140

Earlier quoted context omitted.

How would you classify software _developers_ if not under Research & _Development_?

"Hey boss, can you go ahead and change my job title to Code Janitor?"

so, we've decided to promote you to Principal Monkey With a Typewriter, we expect Hamlet any day now.
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