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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

#251

Post by dragonwriter »

candiddevmike wrote: post #219
tomrod wrote: post #194

Earlier quoted context omitted.

They tried. They had Senate spoilers.

As a progressive, it seems like the Democrats always have Senate spoilers...

> As a progressive, it seems like the Democrats always have Senate spoilers...

With Republicans usually being dominant in a number of states, if Democrats have a Senate majority, it is usually both narrow and dependent on a very small number of Democratic and/or Dem-leading moderate independent Senators from Republican-majority states who vote with the party on leadership, but are soft (or firmly opposed to the progressive preference) on a number of issues important to progressives.

If the US were approximately an equal democracy, this might be less of an issue.

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

#252

Post by lesuorac »

aeonik wrote: post #249
dragonwriter wrote: post #238

Earlier quoted context omitted.

> Because taxing unrealised gains are wealth taxes. No, wealth taxes are a tax on retained wealth (a stock). Taxing unrealized gains is a tax on income (a flow), it just changes the point at which taxation attaches from a realization event to the actual gain.

But you haven't gained... you could be taxed over and over again, and if the stick drops or hits zero then what? It's all on paper and not "real".

imo, it's in the best interest of the market for people to have to realize their gains otherwise the price of an item is pretty imaginary if it's never realized.

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

#253

Post by gigatexal »

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...

This is a highlight in an otherwise shitty bill.

I saw let Trump’s ugly bill die and then a small fix up to the tax code could be this. Should be able to pass.

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

#254

Post by anp »

lesuorac wrote: post #250
demosthanos wrote: post #226

Earlier quoted context omitted.

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 equat…

It is a subsidy! Why should money spent on software _development_ not have to be deprecated over time like other money spent on _development_? I get that it sucks from a cash flow standpoint but the same is going to be true of other R&D expenses. It's just that we're more exposed to this specific R&D expenditure and not others.

The root of this subthread makes it clear why the current provisions to force software expenses to be amortized are different than other kinds of R&D.

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

#255

Post by bravesoul2 »

svara wrote: post #105
mppm wrote: post #71

Earlier quoted context omitted.

Elsewhere in the world (under IFRS accounting rules) capitalization of R&D costs has been a firm requirement for a while. The US has been somewhat unique in allowing them to be expensed instead, until recently.

Taxes are calculated according to tax accounting rules, not IFRS, though? I know of at least two Western European countries where you don't have to do that. Don't worry, we pay enough taxes either way ;)

I was confused and has to double check. In Australia you can deduct them https://www.ato.gov.au/businesses-and-organisations/income-d...

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

#256

Post by svara »

MattPalmer1086 wrote: post #136
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…

Wait - they are saying that employee salaries are not expenses? 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.

Based on my exchange with wdaher, who seems to understand this well, it's a bit more subtle than that:

The salaries are of course expenses, but they are exactly offset by the value of the IP created by the R&D activities.

It's a bit as if you spent money on buying some materials. As long as the material doesn't degrade, the cash is gone but the value is the same and therefore won't reduce your taxes.

If that IP is amortized over a single year, it does not contribute to taxation, but it does if it is amortized over a longer period.

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

#257

Post by slipnslider »

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...

Repealing SB174 has bipartisan support. The house already passed its repeal but it died in Senate because a separate took (that also repealed it) took its place but that separate bill stalled out.

174 is so small it can't go through both chambers on its own so it needs to get attached a larger bill like OBBA.

It's unfortunate because it appears both sides want this repealed to allow immediate amortization of domestic R&D expenses.

https://abgi-usa.com/section174/latest-and-greatest

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

#258

Post by mountainriver »

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…

This is one of the worst things MAGA has done. Tech startups are the source of so much of our wealth, and this makes it very challenging to ever build one.

I can’t believe this still exists, and no one has changed it. We truly are governed by morons

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

#259

Post by aetherson »

madaxe_again wrote: post #200
tomrod wrote: post #190

Earlier quoted context omitted.

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

That isn’t how legislation is passed. If anything, it needs a section about acceptable tar shingle application standards for roofs within 6 nautical miles of any heliport operated in a subarctic area on the west cost. Then it’s looking like a bill.

There's a little of this, but more so, you only get one reconciliation bill per year. And anything that's not a reconciliation bill has to be bipartisan.

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

#260

Post by dragonwriter »

aeonik wrote: post #249
dragonwriter wrote: post #238

Earlier quoted context omitted.

> Because taxing unrealised gains are wealth taxes. No, wealth taxes are a tax on retained wealth (a stock). Taxing unrealized gains is a tax on income (a flow), it just changes the point at which taxation attaches from a realization event to the actual gain.

But you haven't gained... you could be taxed over and over again, and if the stick drops or hits zero then what? It's all on paper and not "real".

> But you haven't gained...

Yes, you have. You have an asset of greater value which you can leverage in a number of ways without liquidating it and "realizing" the gains. That's a real gain, with real value.

> you could be taxed over and over again

Only if you make new unrealized gains.

> and if the stick drops or hits zero then what?

Then you have a negative unrealized gain, or, equivalently, an unrealized loss. If you are taxing unrealized gains instead of taxing gains when realized, then the natural assumption would be, just as is done with taxing gains at realization, that negative unrealized gains are either offset against current income or against future unrealized gains, and so effectively create (considered on their own) negative (current or future) taxes. The simplest form of this is to offset only against future gains, by the simple mechanism that when gains are recognized for tax purposes, they adjust the basis value of the asset, and when unrealized losses occur, they don't effect the basis value at all, so you don't have a taxable unrealized gain again until the market value exceeds the basis value established at the prior peak.

More complex versions would allow you to offset some or all of the unrealized loss from the prior basis value against current income of other forms, but the amount of that offset would reduce the basis value of the asset.

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