“Some spoke on condition of anonymity to discuss sensitive political matters.” - yep this is fine.
The time bomb in the tax code that's fueling mass tech layoffs
91–100 of 991 posts
Re: The time bomb in the tax code that's fueling mass tech layoffs
#92I’m not sure I fully understand the problem here 1. I start “Facebook for dogs” It’s gonna be massive. For the first year me and five guys code away in the garage and I use my savings / credit card / family trust fund to pay them 100k each. Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is 500k. At this point turning round and saying the development was R&D, and claiming 500k of tax breaks is just (to…
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Re: The time bomb in the tax code that's fueling mass tech layoffs
#93Earlier quoted context omitted.
What about construction worker and other labor time to build a factory? That’s the analogy being made here by the tax code: Software whose development is a capital expense with value returned over time.
From a quick search it appears to me like construction labor is deductible as an expense in the year it is incurred. Do you have evidence that says otherwise?
My reading of § 1.263A-1 is that construction labor must be capitalized.
§ 1.263A-1.a.3.A indicates that it's in scope: Real property and tangible personal property produced by the taxpayer
§ 1.263A-1.e.2 specifies that Direct Costs are subject to capitalization: Producers. Producers must capitalize direct material costs and direct labor costs.
(I'm just a taxpayer, not a tax lawyer or even an EA or CPA.)
What tax code references or treasury regulations did you find to support your belief that construction labor can be expensed in the year performed?
Re: The time bomb in the tax code that's fueling mass tech layoffs
#94Earlier quoted context omitted.
> 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…
> none of us would work for a company that isn't doing R&D
So you’d just be unemployed for the rest of your lives? That’s a possible edge case not worth adjusting the tax code for, but it seems unlikely.
> wouldn't force you to pay taxes on a loss.
R&D is an investment, you only pay taxes if the rest of the company is profitable.
If your company is spending 1M / year on R&D and not adding 800k in long term value then in theory you’d be correct. But at that point you either aren’t doing R&D, or are doing such a poor job of it that the government shouldn’t be encouraging that activity.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#95Worth noting: the version of the Big Beautiful Bill passed by the House ends this particular change, starting in tax year 2025. We'll have to see if this provision makes it through the Senate, and in what form.
That's crazy. We're 3 years into a 5 year depreciation cycle, and now they "change their minds". Sure convenient when you know you are in power to supercharge growth and leave a time bomb for the next admin.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#96There are some misunderstandings in the comments that seem to stem from not having read the section, so I thought it was worth referencing the actual text [0]. It's quite short and easy to read.
The most important bits:
* Subsection (a) requires amortizing "Specified research or experimental expenditures" over 5 years (paragraph (2)) instead of deducting them (paragraph (1))
* Paragraph (c)(3) is a Special Rule that requires that all software development expenses be counted as a "research or experimental expenditure".
That's it. All software expenses must be treated as research and experimental expenses, and no research and experimental expense can be deducted instead of amortized. Ergo, all software expenses must be amortized over 5 years.
I strongly recommend reading the section before forming an opinion. It really is quite unambiguous and is unambiguously bad for anyone who builds software and especially for companies that aren't yet thoroughly established in their space (i.e. startups).
Also note that this makes Software a special case of R&D. It's the only form of R&D that Section 174 requires you to categorize as such and therefore amortize.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#97Earlier quoted context omitted.
It makes sense when you consider that there is no minimum tax rate on businesses. Given the choice, Amazon would rather spend 100% of its profits on itself than allow any of its profits to be paid out in taxes. Section 174 was implemented without a minimum tax on corporate profits before voluntary deductions such as research. Therefore, it’s exploitable and all companies ought to hire and fire staff to ensure their p…
The company already pays payroll taxes on those salaries, and the employees pay income taxes. And the people hurt by this aren't the shareholders or top executives, it's the rank and file workers getting laid off, losing benefits, and being asked to work more for the same pay. What this change effectively did was make software developers significantly more expensive, without increasing the amount those developers get…
Software developers are already too expensive in US, so this applies some downward pressure on those salaries. Frankly the economy will be much better off when tech salaries equalize across geos, thus avoiding the deep whole US manufacturing is in (for example, manufacturing wages in Vietname are one tenth of US manufacturing wages, and thus it is better to open new plants there).
Re: The time bomb in the tax code that's fueling mass tech layoffs
#98Note that Trump's Big Beautiful Bill as it passed the House of Reps would bring back 100% expensing of R&D expenses including software development costs/salaries.
If the article is to be believed, though, the damage is already done. Companies have already laid off large portions of their R&D staff, and have canceled lots of forward-looking technical work. Re-hiring those people and restarting those projects can take years, and that's if companies feel confident enough that the exemption will stick around, and not get removed again in a few years.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#99Is there a flaw in saying, "salaries should always be considered a business expense and cannot be amortized over many years." ?
Considering they are probably the largest component of R&D expenses... yes, _if_ you think R&D should be tax-subsidized in some way.
Re: The time bomb in the tax code that's fueling mass tech layoffs
#100This is insane, how does it make sense? Employee salary expenses are no different from other expenses to run your business. Imagine they did this for raw material instead, a restaurant could only expense 20% of the food that they sell. If they purchased $100 worth of food, but could only sell $50 worth of it, they have to pay tax on that even when making a net loss overall. It just does not make any sense. There woul…
It makes sense when you consider that there is no minimum tax rate on businesses. Given the choice, Amazon would rather spend 100% of its profits on itself than allow any of its profits to be paid out in taxes. Section 174 was implemented without a minimum tax on corporate profits before voluntary deductions such as research. Therefore, it’s exploitable and all companies ought to hire and fire staff to ensure their p…
> Given the choice, Amazon would rather spend 100% of its profits on itself
And why is this bad, exactly? Money will be spent and will go back into the economy. Amazon will have to use the funds to build new offices, datacenters, do research, whatever.
And even if execs give themselves $10^11 USD in bonuses, they will be taxed as personal income, at even higher rates than corporate income.