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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

#181

Post by Retric »

jt2190 wrote: post #146
Retric wrote: post #129

Earlier quoted context omitted.

I’m saying investers should pay the full cost of R&D without assistance from taxpayers. When the non R&D portion of the business is profitable they should start paying taxes. Assuming a company isn’t miss classifying operations as R&D it shouldn’t be a major issue.

Thanks for clarifying. This will of course discourage “riskier” startups and dampen innovation and give more power to profitable incumbents who will have less incentive to innovate. (Perhaps the result of this looks like Europe?)

Risky startups with multiple years of R&D before revenue would be the least impacted.

You’re only paying taxes if the business is profitable ignoring investments like R&D spending.

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

#182

Post by anonym29 »

timewizard wrote: post #154
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?

It's worth noting that FB was quite possibly being secretly funded with taxpayer money by national intelligence interests at inception, which would have substantially reduced or eliminated commercial pressure early on.

DARPA was working on Project LifeLog starting in 2003, was to be "an ontology-based (sub)system that captures, stores, and makes accessible the flow of one person's experience in and interactions with the world in order to support a broad spectrum of associates/assistants and other system capabilities". The objective of the LifeLog concept was "to be able to trace the 'threads' of an individual's life in terms of events, states, and relationships", and it has the ability to "take in all of a subject's experience, from phone numbers dialed and e-mail messages viewed to every breath taken, step made and place gone".

The program, at least officially and publicly, was cancelled on February 4th, 2004, the exact same day that Facebook was founded.

https://en.m.wikipedia.org/wiki/DARPA_LifeLog

https://en.m.wikipedia.org/wiki/Facebook

You can call it a coincidence if you want, I just tend to be very skeptical of "coincidences" where massive, powerful, unaccountable, immoral, unethical institutions like the US intelligence community get exactly what they want at the expense of our civil liberties.

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

#183

Post by joshuanapoli »

kopecs wrote: post #172
timewizard wrote: post #154

Earlier quoted context omitted.

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?

Well, presumably the claim would be that a factor in their not having taxable income was the fact that they didn't have to amortize their development cost.

Yeah; start-ups will start paying tax much sooner since salaries are the main expense in software development, and only a fraction can be deducted per year. The tax change must make things marginally more difficult for young companies that have some revenue, aren't cash-flow positive, and have a short horizon.

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

#184

Post by kgwgk »

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.

Fair point. I changed the question to "according to the tax code" and it told me that

Construction labor is generally not deductible as an expense in the year incurred if it is related to the construction or improvement of a capital asset (like a building). Instead, under the U.S. tax code (IRC §263A), these costs must usually be capitalized and recovered through depreciation over time. Exceptions may apply for certain small taxpayers or repairs.

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

#185

Post by layer8 »

As a non-American, it seems strange to me that the cost of regular software development, i.e. that is neither “research” nor “experimental” in a conventional sense, would be deductible in the first place (amortized or not). Isn’t that subsidizing a whole business sector? Maybe I’m misunderstanding something.

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

#186

Post by Reason077 »

The OBBBA (“Big Beautiful Bill”) suspends amortization requirements for domestic R&D expenditure, and explicitly allows domestic software development as an R&D expenditure eligible for immediate expensing.

The new rules would apply from 2025 to Dec 31, 2029:

https://www.crowell.com/en/insights/client-alerts/house-comm...

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

#188

Post by Retric »

profile53 wrote: post #148
Retric wrote: post #127

Earlier quoted context omitted.

> empirically, removing the exemption discourages R&D. Not clearing a road means fewer people use it, but you not going out with a shovel to clear a public roads isn’t you discouraging their use nor is you canceling your plans to clear said roads. Having zero subsidies is the default situation.

It didn’t create a level playing field, it just discouraged a very specific type of R&D while ignoring all others. All other types of employee salaries follow certain rules and some can optionally follow R&D rules. Software is now the only one required to follow 5 year R&D amortization so the deck is now stacked against software.

Software is an asset. If you pay people to build a building you don’t get to deduct their salaries as an operating expense.

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

#189

Post by tomrod »

timewizard wrote: post #154
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?

This impacts deductable expenses, not profits directly. The labor you pay for internally owned IP related to software must be amortorized. This screwed up an enormous number of business plans because software has more risk than many other endeavors. For small businesses, you basically can't do your own software.

It applies to things like configuring your internal tools too. Good luck at audit time.

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

#190

Post by tomrod »

Reason077 wrote: post #186

The OBBBA (“Big Beautiful Bill”) suspends amortization requirements for domestic R&D expenditure, and explicitly allows domestic software development as an R&D expenditure eligible for immediate expensing. The new rules would apply from 2025 to Dec 31, 2029: https://www.crowell.com/en/insights/client-alerts/house-comm...

That would be the one positive I have heard regarding OBBB. This should be put into its own bill.
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