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Thousands of small businesses are struggling because of R&D amortization

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Re: Thousands of small businesses are struggling because of R&D amortization

#331

Post by TrackerFF »

BenFranklin100 wrote: post #127

This 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'm not familiar with US accounting laws, but why not just move R&D teams to operational roles, and have them do the very same work there?

Re: Thousands of small businesses are struggling because of R&D amortization

#332

Post by eropple »

pcai wrote: post #290
eropple wrote: post #283

Earlier quoted context omitted.

Right, this is exactly why I'm confused about the all-is-lost framing of this. $12K isn't nothing. It's a pretty shitty thing to have drop on you and I think it should revert. But if you're starting a software business that isn't a solo shop--so you have hundreds of thousands of dollars in payroll--I would expect a $12K difference to not be the needle-mover between "start a business" and "don't"; we're not talking a…

I understand where you’re coming from but the thing to understand is: most startups are incredibly marginal to begin with. If you tilt the field such that the entire distribution is now ~5-6% lower expected value for any given outcome, you can easily wipe out 80%+ of the startups that might’ve been “worth trying” but don’t make any sense now on a risk-adjusted basis. The entire asset class can become unfundable becau…

Are we talking "startups" or "small businesses" here? I could see this blowing up startups for sure, but the conversation was about small businesses and I'm not sure I see the connection there. In my conception of the universe, you're not rolling out multiple hundreds of thousands of salary when you're hanging out your small-business shingle. You might grow to it, but that'll be over a long period of time.

Re: Thousands of small businesses are struggling because of R&D amortization

#333

Post by ecocentrik »

0cf8612b2e1e wrote: post #295
Gormo wrote: post #291

Earlier quoted context omitted.

By definition, none of them, or they'd be identified as supporters of that party, not independents.

Party affiliation is self reported. You can be lifelong “independent” and vote straight ticket red/blue.

I'd argue that voting predominantly for one party or another doesn't identify the unaffiliated individual as a member of the party who's candidates they vote for. It absolutely doesn't identify the whole unaffiliated voting block as having any secret party affiliation. Telling the whole party system to take a hike is an active choice and it happens in counties that only allow a single political party as often as it happens in countries like the US where there are only really two choices.

Re: Thousands of small businesses are struggling because of R&D amortization

#334

Post by csdreamer7 »

cj wrote: post #328
gumby wrote: post #327

Earlier quoted context omitted.

Do you not keep your books according to GAAP either? If you make up your own accounting rules and it seems to work for you, well, more power to you. I like to have a clear understanding of where my business is going and the GAAP rules are pretty reasonable and align with other companies and what they do.

We do. We also have professional accountants who manage all this for us. It’s interesting that HN is more concerned about the rules changes than the person filing our company’s taxes (or our CFO). This is a topic that is basically glossed over as a non-event between us and those professionals. (Unlike the wayfair ruling which sent everyone, including our accountants, up in arms about sales tax and how to decide nexus…

> It’s interesting that HN is more concerned about the rules changes than the person filing our company’s taxes (or our CFO). This is a topic that is basically glossed over as a non-event between us and those professionals.

You are the one who originally asked why engineers can't be considered a cost center. There is a reason; the R&D tax credit.

> Maybe I have a bad accountant and CFO? Or HN is extrapolating this to mean more than it does.

I am guessing you just do not qualify for the R&D tax credit or it just not worth the paperwork at your scale. For larger companies (and profitable, fast-growing startups that do a lot of the 'develop' part of R&D, which are rare these days, I guess) there is a benefit.

https://taxfoundation.org/research/all/federal/research-and-...

Considering even the tax foundation claims would bring in less than 20k jobs, maybe Congress made the right decision to bring in amortization even if I disagree with what it funds. I do not have numbers for how much it brings it to the federal government but the credit was already known for being difficult for small businesses to use.

Re: Thousands of small businesses are struggling because of R&D amortization

#335

Post by gumby »

cma wrote: post #268
a-dub wrote: post #267

Earlier quoted context omitted.

i don't know enough about tax codes and how business works to comment on the actual policy, but it sure does seem to me that changes that result in immediate and massive new liabilities are unfair.

I think the big problem with this is just the accounting burden: now even salaried programmers have to track hours between greenfield and maintenance development.

I suspect you could use your infrastructure ti give you a pretty good idea of where the split is as you have tools like your bug tracing system, different branches on repos etc to figure out adequately how much time goes where. Much better than time cards unless you’re a government contractor.

Re: Thousands of small businesses are struggling because of R&D amortization

#336

Post by lulznews »

genmud wrote: post #330
lulznews wrote: post #262

Earlier 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. Bro what? Were you starting the business specifically to get these deductions? (I’m genuinely curious, sounds like a fun regulatory arbitrage.)

Taking a 30% hit on business income is a significant thing.

Tech startups are usually “let’s take a gamble” not “let’s pencil in 30% tax deductions.” I’m all for not paying taxes but it’s not typically part of the calculus before starting something.

Re: Thousands of small businesses are struggling because of R&D amortization

#337

Post by voakbasda »

Gormo wrote: post #292
BenFranklin100 wrote: post #169

Earlier quoted context omitted.

Further, R&D is at best a bet, as any of us who has ran a technology business well know. It’s not at all clear one will be able to take the research to market and monetize the R&D investment. Doing that is called founding a successful company.

And if the investment pays off, so that the R&D creates revenue in future years after it's already been paid for, then it will result in actual taxable profit in those future years . It seems like the IRS is trying to speculatively tax unrealized future profits here, and that's pretty unconscionable.

This is exactly what they are doing. If this scheme sticks, it will reduce R&D investment. It certainly disincentivizes me from investing in such efforts.

We once started a revolution over unfair taxation. I sadly think the same will be necessary to fix the status quo, as system has rotted past the point of meaningful reform.

Re: Thousands of small businesses are struggling because of R&D amortization

#338

Post by jl2718 »

Who does this benefit in a zero-sum competition scenario, assuming that everybody is affected.

For instance, imagine a competition over the AI toaster market. You have Philburn, the broke PhD student with a great idea, Burnright LLC, the toaster algorithm and electronics designer, BurnCo, the manufacture, and B2N, the toast technology venture capitalist.

A few scenarios: 1) BurnCo hires Philburn for internal R&D. 2) Burnright develops the tech and licenses to BurnCo. 3) BurnCo contracts Burnright for R&D. 4) Philburn starts Smoke, gets B2N investment, and gets acquired by BurnCo.

Which of these, or others, become comparatively advantaged with this new tax treatment?

Re: Thousands of small businesses are struggling because of R&D amortization

#340

Post by adrr »

rgbrenner wrote: post #305
adrr wrote: post #273

Earlier quoted context omitted.

It’s not five years. It’s whatever the useful lifespan of the software. Web dev we usually did 2 years since that was the average lifespan of a web page. For public companies, they are incentivized to amortize over longer period because it hides expenses and can boost earnings that boosts stock price.

TCJA actually says 5 years for domestic research and 15 for foreign.

Talking about software development which can be classified r&d for tax credits but it can also be capitalized like any other assets.

This pdf has handy chart to determine how to determine software development should be treat for accounting purposes. Grant Thornton is the external auditor for many large companies.

ttps://www.grantthornton.com/content/dam/grantthornton/website/assets/content-page-files/audit/pdfs/2020/accounting-software-costs/accounting-software-costs.pdf

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