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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

#221

Post by e40 »

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…

And if the R&D uses foreign workers, because you can't afford to pay US wages, then the 5 years goes to 15 years!

This hurts small companies (like mine) that were priced out of the US developer market.

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

#222

Post by trhway »

youngtaff wrote: post #166
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…

I worked for a UK company that amortised it’s development costs… it led to the false belief that the company was profitable when it really wasn’t

Yes, that is tremendously important aspect here - the US tech would look better on paper - higher paper profits due lower paper expenses - while getting increased cash flow stress due to decreased deductability of the salaries which are among the main expenses in software dev business.

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

#223

Post by sherburt3 »

Terr_ wrote: post #198
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 "suspends" should be understood as "continues to hold-hostage" / "renews as a time-bomb to screw over some other party".

Removing it would make Congress less powerful, and we can't have that now can we.

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

#224

Post by cjbgkagh »

trinsic2 wrote: post #215
anonym29 wrote: post #182

Earlier quoted context omitted.

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…

I often wonder if national intelligence interests are behind or have taken control of major corporate players like Microsoft, Google and Apple. There was an article [0] back in 2015 that brought forth the proposition that google was created by the CIA. It would explain the current enshitification of these companies and the lengths they are going to take away choice. [0]: https://medium.com/insurge-intelligence/how-th…

Ever wonder why Microsoft bought Skype?

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

#225

Post by silverlight »

I made one of the original posts on HN about this years ago after hearing about it from my CPA. Both then and now these changes make zero sense to me as a matter of good policy. I am also still surprised at the number of people in tech who either haven’t heard about this or are willfully ignoring it and likely filing their taxes incorrectly.

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

#226

Post by demosthanos »

layer8 wrote: post #185

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.

We're not talking about a tax deduction in the sense of a special privilege, we're talking about simple calculations of profit.

Before this change, tax for software development was calculated against:

* Profit = Revenue - Expenses

And software developer salaries fell neatly into Expenses unless you were looking for an R&D tax credit.

After this change, tax for software development is calculated against this new equation:

* Profit = Revenue - (1/5 * YearlyExpenses[-1]) - (1/5 * YearlyExpenses[-2]) - (1/5 * YearlyExpenses[-3]) - (1/5 * YearlyExpenses[-4]) - (1/5 * YearlyExpenses[-5])

Which means that if you are in Year 1 of operation, your values for YearlyExpenses[-2:-5] are all 0 and you only get to deduct 1/5 of your actual operating costs for the year from your "profit". So you can be in the hole but still owe taxes on your "profit" for the year because what you spent money on was classified as R&D.

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

#227

Post by e40 »

It's not only that, ZIRP[1] contributed.

Also, the 10+ years before the layoffs started tech companies were on a hiring binge. Much of big tech was hiring to keep people off the market and off their competitors payrolls (this is from friends of friends in FANG HR departments). These were high paying jobs, too.

[1] https://news.ycombinator.com/item?id=44141650

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

#228

Post by avsteele »

Terr_ wrote: post #198
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 "suspends" should be understood as "continues to hold-hostage" / "renews as a time-bomb to screw over some other party".

That isn't the reason. They sunset in the bill so it has a lower CBO score (which calculates costs out to 10 years). If you sunset in the bill after 5 years, even if you know it will get renewed, the apparent cost goes down. Get it?

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

#229

Post by yardstick »

cjbgkagh wrote: post #206
layer8 wrote: post #185

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.

It stems from the difference in treatment of capital gains and income. Either way it’s deductible, the difference being when it is deductible and how much tax is saved. Capital deductions are typically done later since they require a taxable event. It’s a fudge to make projections look better to allow congress to pass a budget neutral reconciliation bill with the intent that congress would remove the fudge before the…

> Governments in general are pushing for capital gains tax normalization where instead of requiring a taxation event the capital gains tax would be levied yearly.

You’re alluding to wealth taxes, right?

Because taxing unrealised gains are wealth taxes.

Or maybe I’ve misunderstood?

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

#230

Post by luckylion »

ksec wrote: post #171
klipt wrote: post #117

Earlier quoted context omitted.

But most employee salaries are deductible right? If you hire a chef at your restaurant, you aren't depreciating their salary. Doesn't that make software engineers one of the few employees with much worse tax treatment?

I think that is the simplest and best analogy I have read so far in the comments.

The chef doesn't create a meal once that you can sell for the next 10 years though. You pay him for time X, he makes a meal, you sell that meal.

That's fundamentally different from regular software development outside of agencies where there is no direct relationship. Software development is closer to an investment than an expense.

Amortization sucks in general, yes, because the money is gone and it doesn't affect your taxes to the same amount, but that's not different for any company doing manufacturing or anyone needing specialized tools or vehicles that cost significant amounts.

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