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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

#631

Post by VladVladikoff »

rs186 wrote: post #582
antonvs wrote: post #575

Earlier quoted context omitted.

Which is one of the many ways in which the system is broken.

It's almost funny that small code reviews are preferred in software engineering ( https://google.github.io/eng-practices/review/developer/smal... ), but in Congress we have these stupid "big beautiful bill(s)" that are sometimes thousand pages long, and sometimes only released hours before a formal vote. Almost like these bills are intended to fool constituents, cripple opponents' plans, and created just in the hope…

The short timeline actually makes this an excellent opportunity for LLM analysis if you have a model which could digest the entire bill without reaching token limits.

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

#632

Post by Filligree »

tomrod wrote: post #394
tomrod wrote: post #305

Earlier quoted context omitted.

Hell, just first past the post would eviscerate the current parties.

Argh. Too late to edit. Something else outside first past the post* like ranked choice voting.

Which is why they’ll never vote for it. Such changes are remarkable rare. :(

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

#633

Post by Klonoar »

netcan wrote: post #572
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…

What are the implications of this. As I understand accounting, this means that reported profits would be higher, and therefore incur more corporate income tax liability. Cash flow isn't effected besides tax. A startup isn't likely to be making a profit yet, under either accounting rule. Is there a benefit to reporting a larger loss? My first thought is that this effects Google and suchlike, not startups. But... assum…

Google was reportedly amortizing (by choice) long before this was in effect, so while it might “affect them”, in practice it’s likely business as usual.

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

#634

Post by testrun »

jere wrote: post #619
testrun wrote: post #606

It seems that there is quite a bit of confusion about this. What this does is that it reduce your deductible cost in the tax year. First you have to make a profit (tax is on profits). Secondly, what this does is to limit your software development expenses for tax purposes in the current year because the development cost is seen as a capital cost that will be amortized over five years opposed to operating expenditure…

I can see why it would affect startups not making a profit but why would it dramatically affect FAANG (e.g. some of the most profitable companies in the world that have been running for decades)? The article contributes all these large layoffs in FAANG, in part, to this tax rule.

Because they are profitable. So the cost is deductible over 5 years, instead of one year.

A very simple example:

Revenue: $ 1 000 All other cost except software: $ 500 Software cost: $ 100

Net profit (if software is allowed as opex): $400

Tax on $400 (@30%): $120

Net profit after tax: $280

However, if it is capex(amortized over 5 years):

Revenue: $ 1 000 Other cost (except software): $500 Software cost: $ 100

Net profit before tax: $ 400

Important: But now for tax purposes you can only deduct $20 this year as a cost ($100 amortized over 5 years)

So now you have to add back $80 to net profit for tax purposes: $480

Tax (@30%): $ 144

Net profit after tax: $400 - $144 = $256

So the difference is $280 - $256 = $24

Just a few notes:

1. I assume tax rate at 30%, it can be something else, principle stay the same

2. That all other expenses are tax deductible

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

#635

Post by throwaway173738 »

wvenable wrote: post #516
cma wrote: post #501

Earlier quoted context omitted.

A dead post below says it was biden and somehow Obama, but sibling reply link says it passed into law in 2017, not 2022, the first year it went into effect I think.

The article is pretty clear that the law was from 2017 had a scheduled start date of 2022. Although probably not the actual intended effect, it does have the effect of confusing who would be responsible for it by those who don't read past the effective date.

This is 100% the intended effect of leaving a bomb like this unaddressed then stalling all legislation halfway through your opponent’s term. You make them look incompetent and then you complain about how they never fix anything, even though they never get anything done because you’ve stopped cooperating. And even though you’ve stopped you can keep complaining about how they always include things you don’t like in legislation so that’s why you never cooperate. The solution is simple in your eyes: just do exactly what you want and only what you want and then you’ll cooperate. This is how a lot of a certain party was talking on the news from 2021 to 2025 when they were interviewed.

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

#636

Post by brutalhonesty »

testrun wrote: post #606

It seems that there is quite a bit of confusion about this. What this does is that it reduce your deductible cost in the tax year. First you have to make a profit (tax is on profits). Secondly, what this does is to limit your software development expenses for tax purposes in the current year because the development cost is seen as a capital cost that will be amortized over five years opposed to operating expenditure…

Profit is determined by expenses though.

A simple example to illustrate:

Say you had 100k revenue and 1 software developer you pay 100k per year.

Under the new law, you can only deduct 20k of the developer’s salary, so your profit is 80k, which you have to pay taxes on.

However, you have $0 in the bank because you earned 100k and paid out 100k in salary.

See how that is problematic?

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

#637

Post by owebmaster »

randomNumber7 wrote: post #596
Temporary_31337 wrote: post #594

Question, if you have to amortise it over 5 years, and you can survive the initial 4, does it break even in year 5 (assuming stable employment)? Ie you amortise the previous 5 years (20% each) which works out to 100% anyway?

If you give me 1000$ today and I give you back 1000$ in 5 years do you break even?

This US American idea of paying taxes = giving money away is weird. Especially coming from tech people, as what is preventing other nations from taxing the hell of big/US tech is the US government and its threats.

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

#638

Post by Reason077 »

AStonesThrow wrote: post #551
coliveira wrote: post #416

Earlier quoted context omitted.

That's how they like, more time to campaign and less work that may be impopular. Thinking about it, the US government is going exactly the same way of the Roman republic.

> US government is going exactly the same way of the Roman republic. We're gonna conquer and annex Egypt? What an awesome time to be alive!

Egypt? No. But how about Greenland, Canada, and Panama?

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

#639

Post by throwaway173738 »

xyzzyz wrote: post #621
paulryanrogers wrote: post #616

Earlier quoted context omitted.

> On a percentage basis, over three times as many districts were competitive in states where independent commissions drew maps as in states where Republicans drew maps. https://www.brennancenter.org/our-work/analysis-opinion/how-...

That’s just confusing cause and effect. If your seats are safe, you have no reason to agree to forming an independent commission. The same is true in both heavily blue and heavily red states. Are districts more competitive in states where Democrats draw maps? I don’t think so.

This totally ignores values and motivations, and I would argue that only one group in your comment values winning at any cost.

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

#640

Post by maxerickson »

brutalhonesty wrote: post #636
testrun wrote: post #606

It seems that there is quite a bit of confusion about this. What this does is that it reduce your deductible cost in the tax year. First you have to make a profit (tax is on profits). Secondly, what this does is to limit your software development expenses for tax purposes in the current year because the development cost is seen as a capital cost that will be amortized over five years opposed to operating expenditure…

Profit is determined by expenses though. A simple example to illustrate: Say you had 100k revenue and 1 software developer you pay 100k per year. Under the new law, you can only deduct 20k of the developer’s salary, so your profit is 80k, which you have to pay taxes on. However, you have $0 in the bank because you earned 100k and paid out 100k in salary. See how that is problematic?

That's a horrible revenue to expense ratio for ditch digging, nevermind software development.
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