This explains why I have seen so many tech companies doing layoffs. They layoff now, wait for the fix(hopefully), then hire people again(hopefully). And here I thought it was AI replacing the workers.
Thousands of small businesses are struggling because of R&D amortization
211–220 of 369 posts
Re: Thousands of small businesses are struggling because of R&D amortization
#212This is a topic about which I'm very passionate. I've written my congressional representatives several times. I've posted on LinkedIn. I'm raising awareness with my close colleagues. I'm trying to beat the drum as much as I can. There is a minor win that was just advanced in the House yesterday[0] to delay US onshore amortization through 2025 via The Tax Relief for American Families and Workers Act of 2024[1]. It doe…
> It's not enough. I was geared up to start a business this year; this, specifically, has put the brakes on it. I've read a little about this, but not a lot. How has this put sufficient drag on starting a business that it's impractical to go from zero to one? Is there an aspect of the business model that's particularly impacted?
Zero to one is considered “R&D” and that’s what this entire thing is about.
Re: Thousands of small businesses are struggling because of R&D amortization
#213This is going to wipe out a lot of small businesses, including innovative software dev startups. Here’s a simplified example of this works: Let’s say you’re a four person software dev startup. Everybody is making, say, $125K to get by. That’s $500K in salary expense which normally you can write off as expenses against revenue/funding. For this example, let’s say somehow you also generated $500K in revenue/funding, i.…
I don't get it. How is this not just $500k salary? How is it R&D?
It is salary, but it goes not into operational expense (that applies directly creating the things you sell right away) but into building a capital asset that helps you generate future revenue and can depreciate over a number of years.
It's just as if you pay the salaries of some construction workers to build you a new factory - those salaries are part of the capital investment for creating that factory (and depreciated as that asset), not your operating expenses.
Re: Thousands of small businesses are struggling because of R&D amortization
#214What does this mean if you’re trying to start your own 1-person SaaS company?
Re: Thousands of small businesses are struggling because of R&D amortization
#215Earlier quoted context omitted.
> It's not enough. I was geared up to start a business this year; this, specifically, has put the brakes on it. I've read a little about this, but not a lot. How has this put sufficient drag on starting a business that it's impractical to go from zero to one? Is there an aspect of the business model that's particularly impacted?
Zero to one is considered “R&D” and that’s what this entire thing is about.
I am aware of that part, yeah. It's a shitty change, one hundred percent, and I'm glad to see folks like Wyden trying to unwind it. At the same time, I've owned small software businesses before, and I've started/not started new ones based on whether I thought it would work out. Where I am unclear is what sorts of business plans, on day zero, would be suddenly nonviable when it was viable before, so suddenly overwhelmingly difficult, as to cause such discouragement.
Is there a good chance of recategorization pushing a very marginal business off the cliff? Sure--that Twitter thread, where there are enough details to read in, has a lot of examples of marginal businesses having trouble (mostly because of not being able to plan in the change, which really sucks). But you don't have that on day zero, and going in with the aim to be that very marginal business is probably not the best of ideas. It's not a day-zero problem, and I am struggling to see where a small business with a business plan that was previously worth executing on is now not worth it because of this change.
Re: Thousands of small businesses are struggling because of R&D amortization
#216Earlier quoted context omitted.
You should note that these sorts of tax law changes are largely a revenue game: Someone wants to cut some other tax, so they find a place to raise taxes elsewhere without thinking about the consequences. But also, the vast majority of people employed by R&D-heavy companies are Democrats, so it's hard to impute motive one way or the other.
Independent/unaffiliated voters are now 47% of the electorate in the US so that last statement probably doesn't hold water. Are educated voters, regardless of party affiliation, more likely to vote for serious candidates that focus on issue resolution over culture signaling? Sometimes, but that no longer has much to do with party affiliation.
Of those 47% independent, what fraction consistently vote for a particular party?
Re: Thousands of small businesses are struggling because of R&D amortization
#217[deleted]
Re: Thousands of small businesses are struggling because of R&D amortization
#218Now my managers have even more reason to rush out broken "features" and use bugs to "fix" them later.
Re: Thousands of small businesses are struggling because of R&D amortization
#219How does one determine whether work done by an employee is classified as R&D or as an immediate expense? If a programmer is building an app that isn't yet offered as a product, is that R&D? If a programmer is maintaining an app that is offered as a product, is that NOT R&D?
See section 5 of this IRS guidance: https://www.irs.gov/pub/irs-drop/n-23-63.pdf tldr: if they're developing new features, it has to be capitalized; if they're doing maintenance then it can be immediately expensed
Can't wait for the JIRA workflows around this
Re: Thousands of small businesses are struggling because of R&D amortization
#220Earlier quoted context omitted.
>software engineers/developers are not in any way engaged in what might be considered genuine scientific research and development Have you forgotten the D in R&D? Software engineers are building the product. That’s development. What do you mean by “genuine scientific research”? I suppose you think ML researchers aren’t doing “genuine science” because they wear hoodies instead of lab coats?
That's a different word that is merely spelt the same. My programmers build software. Should builders building a house amortise their development work?
Yes, if your company has builders that build you an asset (like a warehouse or a factory or office building) then you always had to amortise those salaries together with all the other expenses for building that capital asset.
That's not the case if you contract your builders out to build a house for someone else and they pay you for the hours, but IMHO it's also not the case (even with the new changes) for software developers being 'rented' as contractors to build stuff for others and the company getting paid for their hours.