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

Post by [deleted] » Sat, Jun 07, 2025, 10:13 PM UTC

maxerickson wrote: post #640

brutalhonesty wrote: post #636

Earlier quoted context omitted.

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.

Post by rayiner » Sat, Jun 07, 2025, 10:15 PM UTC

paulryanrogers wrote: post #684

xyzzyz wrote: post #648

Earlier quoted context omitted.

I don’t even know which group you mean, but “my group has good values and motivations, but the enemy group just values winning at any cost” is exactly what a total partisan who values winning at any cost would say.

The evidence is that independent commissions drawing maps makes for more competitive districts. Which party is most opposed to such commissions? Which party is gleefully dismantling all accountability and oversight positions and departments? Which party is openly inviting corruption and pardoning those they should be prosecuting?

Post by testrun » Sat, Jun 07, 2025, 10:19 PM UTC

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?

Post by testrun » Sat, Jun 07, 2025, 10:27 PM UTC

epr wrote: post #651

testrun wrote: post #603

Earlier quoted context omitted.

No, you pay taxes on profits. What this does is reduce your upfront deduction.

Yes, but the main thing here is that ALL software development is now "profit" in the short term. In theory you've developed a capital good that benefits you over time, hence the amortization. Simplified 2021 example before 174: 100k Revenue 100k Software Dev Costs No profit or tax Simplified 2022 example after 174: 100k Revenue 100k Software Dev Costs 90k "profit" 18.9k taxes Above example is year one of suddenly hav…

Post by jameshart » Sat, Jun 07, 2025, 10:30 PM UTC

mcv wrote: post #792

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…

Wait, salary costs do not count as costs for the year they're made in? That is completely nuts, no matter what kind of company you have. Although for a startup it might be least bad, because for their first few years, their revenue might well be closer to zero; they tend to burn money, sometimes for quite a while.