131–140 of 991 posts
Is there a flaw in saying, "salaries should always be considered a business expense and cannot be amortized over many years." ?
There 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…
Everyone assumed it was a traditional accounting hack. But given the timing and the reinitialization, it's clearly political, not economic.
The code is a strategic time-bomb designed to cause a high-profile economic downturn during a presidential election cycle, specifically when the following president is a Democrat and Republicans have a house majority.
It was used to harm Biden's economy, and it will happen again in 2030 if the next president is a Democrat. While deferred, it will be spun as a major Trump "economic achievement" for the midterms, because companies will be able to afford to hire again.
The tech industry is merely high-profile fodder for extreme politics. It really is that petty.
Earlier quoted context omitted.
> 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…
Earlier quoted context omitted.
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…
Don’t forget the other stakeholder - the general public. Yes it sucks for developers, but does it make any difference for any other employee? Why does Joe’s plumbing have to pay those taxes, but Jane’s AdTech company doesn’t? Sure, there are benefits to investing in R&D in general, and tech has fueled a lot of growth, so incentivizing it has likely paid off for the whole economy. But will that forever be true? Maybe?
Why do I, the hardworking tax payer, have to subsidize Joe Plumber, who already has a big house with a pool?
> 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…
That is surely wrong? Just because those salaries are for R&D?
I could understand if there was some additional tax break for R&D which was being removed. I can't see how basic operating costs cease to be expenses.
bit of a self-own it seems. Start-ups and early stage companies might simply decide to start in a more friendly tax jurisdiction. E.g.: Switzerland offers a 135% deduction on R&D-related salaries in the year they are incurred, making it an attractive location for tech development EU provides a large pool of experienced developers seeking new opportunities on salaries well below SV. Why pay 500K for a burnt out "rocks…
If I could start anywhere in the World, Switzerland would be above all the war-torn and crime-ridden places, but business-wise it's no good for a tech startup.
There 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…
For those around when this went into effect many business owners were surprised. Our accountants told us they seriously thought congress would fix this before it went into effect.
>The delayed change to Section 174 — from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods. Doesn't this just amortize out to be roughly the same amount of deduction over the long term? All the big companies mentioned should be relatively unaffected over an N>5 year time period. Also this was something that's…
> Doesn't this just amortize out to be roughly the same amount of deduction over the long term? Yes, but if your business is not yet profitable, having to pay tax on money you don't actually have in the bank (because expenses exceeded revenue during the year) will cut into your runway, perhaps to the point that your company might not exist in five years... or even two or three.
Earlier quoted context omitted.
In tax policy, every single change looks reasonable to one interest group, and like a cheat to a different interest group. That is just the nature of tax policy. Any change hurts some people, harms others. Changes to Section 174 happen rarely and are not a “common tactic.” Changes to tax policy in general are common, especially in the reconciliation process. They can have unforeseen side effects. As well as side effe…
> Any change hurts some people, harms others. Not quite the sentiment you intended.