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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

#151

Post by xhkkffbf »

demosthanos wrote: post #73
paulcole wrote: post #65

Earlier quoted context omitted.

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

No, that's literally the Section 174 change. You now must count them as R&D. The relevant paragraph from Section 174: > (3) Software development > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. https://www.law.cornell.edu/uscode/text/26/174

What if some executive tweaks a "no code" tool? Technically, the name says that there's no coding involved.

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

#152

Post by walterbell »

wdaher wrote: post #72

Worth 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.

> ends this particular change

Temporarily, for 5 years.

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

#153

Post by brookst »

mring33621 wrote: post #145
demosthanos wrote: post #73

Earlier quoted context omitted.

No, that's literally the Section 174 change. You now must count them as R&D. The relevant paragraph from Section 174: > (3) Software development > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. https://www.law.cornell.edu/uscode/text/26/174

what if you don't call it "software development"? how about "business process mechanization"?

At that point you’re so into tax fraud that you light as well call them “postage and shipping”

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

#154

Post by timewizard »

sampton wrote: post #133

Amortization is bad policy when it comes software. Software is inherently high risk. Every piece of software is unique and does not guarantee steady income over 5 years. Most startups won't survive 5 years to fully realize the deductions. This is the end of US software dominance.

Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have?

Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Would this change have had any actual impact on their foundings?

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

#155

Post by fluidcruft »

warkdarrior wrote: post #88
sitkack wrote: post #62

Is there a flaw in saying, "salaries should always be considered a business expense and cannot be amortized over many years." ?

That's not what the law says. You'll have to take it up with Congress.

I think they're asking whether there would be a flaw with making that change.

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

#156

Post by sokoloff »

kgwgk wrote: post #84
demosthanos wrote: post #54

Earlier quoted context omitted.

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?

> Dear ChatGPT, is construction labor deductible as an expense in the year it is incurred according to GAAP? Please answer in a few lines. Under GAAP, construction labor is not immediately deductible as an expense in the year it is incurred if it relates to the construction of a long-term asset (like a building). Instead, it is capitalized as part of the asset's cost and then expensed over time through depreciation.…

Though your answer is correct for the tax code as well as GAAP, Generally Accepted Accounting Principles are not necessarily followed by the tax code.

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

#157

Post by victoro »

radley wrote: post #132
demosthanos wrote: post #96

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…

It's not really targeted at tech, insomuch as at Democrats. 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…

The Democrats had control of the presidency and the house in 2022 when this provision first went into effect but had 2 fewer senators (1 fewer if you count the tie-breaking VP). Why didn't they try to change it? Is there some reason a change in the tax code like this can't be modified or repealed once its in place?

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

#158

Post by singron »

throwawaymaths wrote: post #119
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…

so you are okay, if you start getting revenue when you're five years in?

You can deduct 100% of salaries paid 5 years ago, but only 20% of salaries last year (etc.), and since companies tend to hire more people over time, most of your expenses will have been in the last few years that are still amortizing. You might have enough losses to carry forward in your first year of revenue, but 6 years in that could run out. It depends on the exact circumstances.

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

#159

Post by twoodfin »

sokoloff wrote: post #156
kgwgk wrote: post #84

Earlier quoted context omitted.

> Dear ChatGPT, is construction labor deductible as an expense in the year it is incurred according to GAAP? Please answer in a few lines. Under GAAP, construction labor is not immediately deductible as an expense in the year it is incurred if it relates to the construction of a long-term asset (like a building). Instead, it is capitalized as part of the asset's cost and then expensed over time through depreciation.…

Though your answer is correct for the tax code as well as GAAP, Generally Accepted Accounting Principles are not necessarily followed by the tax code.

Unfortunately my understanding of the R&D expensing rule is that it is lifted directly from GAAP, which means private companies have to adhere to those (heavyweight) rules to comply.

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

#160

Post by badloginagain »

walterbell wrote: post #152
wdaher wrote: post #72

Worth 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.

> ends this particular change Temporarily, for 5 years.

If remember correctly, this was put in by Trump first round, set to activate when Biden was in office.

Now Trump second round fixes it, but expires in next (presumably) Democrat administration.

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