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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

#731

Post by dataflow »

bunnie wrote: post #537
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 pretty bad. It had a huge impact on my personally, I'm a small R&D shop and basically I have had to end all risky long-term research projects. In addition to the research costs, I'd also have to pay taxes on the research costs mostly up-front. Significantly, if the project doesn't work out, I'm still out of pocket for the tax money. It's a penalty for taking a risk, and it kneecaps American innovators in a globa…

> The rule as written means contractors who write Windows drivers could deduct their expenses (as they would have no residual rights to a closed-source work product), but contractors who write Linux drivers may not (as they would have some rights to open-source Linux drivers).

Is it just me or are you conflating two orthogonal things?

An open-source Windows driver would have the same issue, no? And a closed-source proprietary Linux driver privately written for some company wouldn't have this issue either, right?

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

#732

Post by eipipuz »

iancmceachern wrote: post #719
MPSimmons wrote: post #718

Earlier quoted context omitted.

I have no doubt it's bad, but I can't believe that it's both fueling mass layoffs and also almost nobody has heard of it. Those are unlikely to both be true.

By what logic?

Assuming this change is causing the layoffs, then these companies know about this.

If these companies don't know about this change, then why would we believe this change is causing it.

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

#733

Post by iancmceachern »

thegrimmest wrote: post #727
iancmceachern wrote: post #720

Earlier quoted context omitted.

No, education is not brainwashing. These terms have different definitions. One is by definition good, one bad. Words matter, definitions of words matter.

I’d love an education system that only teaches scientific consensus, and leaves moral conclusions to parents and households. However I’m sure you’d appreciate that’s not what we have.

Fortunately our system is setup such that passionate folks like you can work to effect change. Go do it - volunteer for your local PTA, run for school board positions, show up to public hearings. Be the change you want to see in the world. God Speed my friend.

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

#735

Post by dustbunny »

achenatx wrote: post #679

If your payroll ends up being about the same, after 5 years it all evens out in the sense that you will be expensing 100% of your payroll each year (but the expensing will be 20% from each of the prior 5 years). If your payroll is quickly growing You experience the problem on all payroll growth. If your payroll is decreasing, you get a tax benefit. Your outgoing cash is less, but you are getting deductions from prior…

Sure if you big enough to ride out 5 years but if your a hungry struggling bootstrapped startup, this can be game over.

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

#736

Post by iancmceachern »

MPSimmons wrote: post #728
iancmceachern wrote: post #719

Earlier quoted context omitted.

By what logic?

At least one person at every company impacted knows why they're firing people, right? Likely several people who are in a decision making capacity. At every company. Those companies have R&D for a reason. A company _wants_ to make things, right? If this is impacting their ability to make things, wouldn't it be in a company's best interest to advocate openly against the tax code, rather than be silent about the reason,…

It's not like this.

It's like this: Company wants to do R&D, they have a budget, they do math that says they can afford to pay X number of R&D workers with Y budget.

Government changes tax laws in unexpected way, that changes the math so that Y budget only can support X-A R&D workers because the "A" goes to taxes now.

Also important to note, the tech R&D space is a very small part of the overall economy. We exist in a little thought bubble here on HN.

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

#737

Post by thegrimmest »

iancmceachern wrote: post #733
thegrimmest wrote: post #727

Earlier quoted context omitted.

I’d love an education system that only teaches scientific consensus, and leaves moral conclusions to parents and households. However I’m sure you’d appreciate that’s not what we have.

Fortunately our system is setup such that passionate folks like you can work to effect change. Go do it - volunteer for your local PTA, run for school board positions, show up to public hearings. Be the change you want to see in the world. God Speed my friend.

Having the ideology of the majority taught in schools is the outcome of a strictly democratic process like the one you’re describing. I’m suggesting that the separation between church and state be extended to any ideological teaching.

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

#738

Post by shawndumas »

inadequatespace wrote: post #662

The title of this article implies that it is a major or even the only cause for mass tech layoffs, which I strongly doubt. For example, rising interest rates I'm sure also independently contributed. I would be interested to if anyone has gotten a sense of exactly how much this has contributed.

agreed, the interest rates and the overestimation on the stickiness of the pandemic’s increase in internet usage post-pandemic are the primary other contributing factors that, imo, represent the lion’s share; even allowing that the tax changes are tertiary is a stretch much less as the primary/secondary reason

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

#739

Post by ccleve »

roflmao123 wrote: post #730
gortok wrote: post #686

Earlier quoted context omitted.

> A startup isn't likely to be making a profit yet, under either accounting rule. Is there a benefit to reporting a larger loss? As an example, A two person software startup; both drawing a salary, each making $100,000 per year. Each doing things related to software development. Startup brings in 200,000K in revenue. Under pre Section 174 changes, the profit is zero. Both salaries are expensible in the year they were…

> Post Section 174, the profit is now $160,000 each year. Now they pay taxes on $160,000, even though they literally have no money left over because revenues equaled expenditures. They have the $200k they pulled from their startup, far more than what most people earn. If you make enough to pay yourself $100k then you make enough to pay taxes.

They do pay taxes. They each pay personal income tax on their $100k.

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

#740

Post by DSMan195276 »

patmcc wrote: post #359
potamic wrote: post #22

This is insane, how does it make sense? Employee salary expenses are no different from other expenses to run your business. Imagine they did this for raw material instead, a restaurant could only expense 20% of the food that they sell. If they purchased $100 worth of food, but could only sell $50 worth of it, they have to pay tax on that even when making a net loss overall. It just does not make any sense. There woul…

If the restaurant buys e.g. a fancy oven or a delivery truck, it can't expense 100% of that cost in year 1, it has to spread that cost over the lifetime of the oven or truck. Labor that operates the business day-to-day would be an expense, labor that creates a capital asset is more complicated. I happen to think most employee time in software dev is more on the day-to-day operation side, and should be expensed, but I…

> If the restaurant buys e.g. a fancy oven or a delivery truck, it can't expense 100% of that cost in year 1, it has to spread that cost over the lifetime of the oven or truck.

The difference of course is that you'll have a truck or oven that can be sold. If you could count the full value in the first year then you could sell and buy one each year to reduce your taxes without actually changing anything.

Thus if we want to go that route for software the salary of the R&D employees should be counted against the value of the software they created (As in, the value were it to be sold wholesale to another company). The time spent by the employees is not an asset, once you pay the employees for their time it's gone even if they generated nothing of value. The actual value is that of the software, but that's obviously not easily assigned a value.

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