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The time bomb in the tax code that's fueling mass tech layoffs

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Re: The time bomb in the tax code that's fueling mass tech layoffs

#61

Post by demosthanos »

Retric wrote: post #51
demosthanos wrote: post #47

Earlier quoted context omitted.

Level playing field for whom? Who does incentivizing R&D disadvantage? Restaurants weren't competing with R&D-heavy corporations in any way. R&D-heavy corporations competed with each other, on a level playing field where all of them can build new stuff without having to pay taxes on negative income in their early years. The only change this has made is un-level the playing field in favor of old, established corporati…

> Who does incentivizing R&D disadvantage? Taxpayers who end up with the bill and every company is competing for workers, office space, etc. Incentives across decades shift what people study, what business get created, etc. R&D sounds great abstractly, but it’s not some panacea where unlimited funding results in pure gains. The economy is generally more efficient without central planning, and dumping money into anyth…

> every company is competing for workers, office space, etc

My company is all-remote and none of us would work for a company that isn't doing R&D. Most of an entire profession now has to be amortized over 5 years.

> The economy is generally more efficient without central planning

The old tax code isn't "central planning", it just had the very reasonable property that the government wouldn't force you to pay taxes on a loss.

This scenario [0] is now possible. It wasn't before. That is a catastrophic level of stupidity, and you can't justify it with invisible-hand nonsense.

https://news.ycombinator.com/item?id=44204353

Re: The time bomb in the tax code that's fueling mass tech layoffs

#63

Post by svara »

wdaher wrote: post #56
svara wrote: post #46

> For cash-strapped companies, especially those not yet profitable, the result was a painful tax bill just as venture funding dried up and interest rates soared Can someone explain this? What taxes do unprofitable US businesses owe that this would be deducted against?

Here's a toy example that hopefully makes this clear: In 2024, your business has $1m in revenue and has $2m in expenses. 100% of these expenses are R&D salaries (engineers you hire.) Your company loses $1m/year. (You brought in $1m and spent $2m.) Under the old rules, you'd owe no tax because you were unprofitable. After Sec 174, what the IRS now says is: You had revenues of $1m. But you only had $400k in expenses (b…

Is this true even if you don't capitalize the immaterial IP asset generated by the R&D salaries on the balance sheet? Is that required in the US?

Otherwise I'm quite amazed that salaries can be carried forward as future expenses.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#64

Post by mywittyname »

dtagames wrote: post #2

This doesn't explain the mass tech layoffs. According to the article, the rule applies to R&D. The vast majority of tech workers laid off in the last two years didn't work in research and development. They wrote regular software for sale, like games, for example. The games industry, while hugely profitable and bigger than TV, movies, and music combined, laid off tens of thousands of people. It's unmitigated greed is…

> The vast majority of tech workers laid off in the last two years didn't work in research and development.

I bet they were classified as R&D for accounting purposes. Product development largely falls into R&D - it doesn't matter what the product being developed is for.

Every job I had at a megacorp was classified as R&D, and I know because I had to track hours against such.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#65

Post by paulcole »

wdaher wrote: post #56
svara wrote: post #46

> For cash-strapped companies, especially those not yet profitable, the result was a painful tax bill just as venture funding dried up and interest rates soared Can someone explain this? What taxes do unprofitable US businesses owe that this would be deducted against?

Here's a toy example that hopefully makes this clear: In 2024, your business has $1m in revenue and has $2m in expenses. 100% of these expenses are R&D salaries (engineers you hire.) Your company loses $1m/year. (You brought in $1m and spent $2m.) Under the old rules, you'd owe no tax because you were unprofitable. After Sec 174, what the IRS now says is: You had revenues of $1m. But you only had $400k in expenses (b…

But nobody’s forcing you to classify software developers as R&D.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#66

Post by wdaher »

svara wrote: post #63
wdaher wrote: post #56

Earlier quoted context omitted.

Here's a toy example that hopefully makes this clear: In 2024, your business has $1m in revenue and has $2m in expenses. 100% of these expenses are R&D salaries (engineers you hire.) Your company loses $1m/year. (You brought in $1m and spent $2m.) Under the old rules, you'd owe no tax because you were unprofitable. After Sec 174, what the IRS now says is: You had revenues of $1m. But you only had $400k in expenses (b…

Is this true even if you don't capitalize the immaterial IP asset generated by the R&D salaries on the balance sheet? Is that required in the US? Otherwise I'm quite amazed that salaries can be carried forward as future expenses.

This is what the Sec 174 change said: it says that you do have to capitalize it.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#68

Post by sitkack »

demosthanos wrote: post #42
sokoloff wrote: post #32

Earlier quoted context omitted.

Now imagine that a restaurant buys 100 tables, 500 chairs, kitchen equipment, cutlery for 800 people, signage, a security system, and does a remodeling before opening. (Or an airline buys an airplane. Or a hotel chain builds a hotel.) Should they be able to expense all of those items that provide value for multiple years in a single year? Does software development provide value exclusively in the year it's done? Or o…

The reason that we require you to deduct an expense over years for some things is because they have a resale value that needs to be accounted for. It's not a pure expense because you have an asset with real value that came out of the purchase. Employee time has no resale value. Once used it's gone, so employee salaries are expenses, not investments. The only possible justification for the Section 174 R&D changes is t…

Software is like Art, it doesn't have value until sold or can be used. If they sell services based on the software, they are generating revenue and then taxation on that revenue can occur.

Same as if they sell the software, either as a copy or ownership.

But not being able to take salary as a business expense seems like as thing that would happen if software in and of itself has value, which is largely does not.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#69

Post by axus »

jrs235 wrote: post #29
bigbadfeline wrote: post #21

Earlier quoted context omitted.

> Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. None of this adds up. You're saying, the legislators were trying to cheat and because it's a "common tactic" that kind of cheating is somehow good, but it's bad when the cheating doesn't go through? On the other hand, being a common tactic implies that the possibility of it remaining…

When using bill reconciliation in order to avoid Senate filibusters to pass a budget, certain conditions must be met otherwise regular Senate rules and the need for 60 Senators to be onboard to avoid a filibuster come into play. It's not cheating, it's playing by different rules to get most of what you want/need done and then sometimes those that played and gambled were intending to, or hoped to, make the changes lat…

Agreed. If the members of the majority party can compromise within their single-party system, and play by certain rules, everyone else is powerless to amend or block the legislation.

Re: The time bomb in the tax code that's fueling mass tech layoffs

#70

Post by orangecat »

dtagames wrote: post #9
jewelry wrote: post #6

Earlier quoted context omitted.

Greed is too easy as a target.. industry space has shifted because of slower innovation and less growth, so cost cutting being more a focus would be a reasonable strategy

If your company is already profitable to the tune of billions annually, "cost cutting" isn't necessary. You're just cutting people out of jobs and out of economic participation in society -- which affects a far larger group than just themselves when those folks can't spend their salaries in other businesses. There is no justification for "cost cutting" when it hurts the larger economy. If the company were losing mone…

If a company is making $10 billion in annual profits, and they discover that they're spending $100 million on a useless project, are they morally obligated to continue that spending indefinitely?

There is no justification for "cost cutting" when it hurts the larger economy.

It is not good for the economy to have people doing work that doesn't produce value.

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