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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

#91

Post by pclmulqdq »

addicted wrote: post #55
telesilla wrote: post #39

Take action and sign up for the Small Software Business Owners Association newsletter and petitions to the government: https://ssballiance.org/ Michele Hansen is doing an incredible job here and should be recognized for it. Latest news was sent yesterday: Republicans and Democrats finally struck a tax deal that includes a partial fix for Section 174. It includes expanding the Child Tax Credit, a key Democratic priori…

They’re calling this a business priority for the Republicans when it was a Republican House, Senate and President that passed this measure. That’s a bit too “must make it seem bipartisan” when there is a clear partisan direction. Even when this fix is passed, it will be voted for unanimously by Democrats and only a small fraction of Republicans will vote for it. Explain again to me how that makes it a Republican prio…

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.

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

#92

Post by [deleted] »

MattRix wrote: post #83
edgyquant wrote: post #70

Earlier quoted context omitted.

Why is spreading something out over 15 years harder than spreading it out over 5?

So this year if I spend $150k on foreign research (which includes ANY software development), and then I also earn $150k in revenue: despite me having $0 in the bank, I will only be able to deduct 1/15 of that, or $10k. In other words, I’ll be taxed as if I made $140k of profit, despite me not having any actual money left over. You can see how if this was 5 years, then I could deduct 1/5 and I would be taxed on $120k…

[deleted]

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

#93

Post by hyperpape »

geraldwhen wrote: post #90
MattRix wrote: post #71

Earlier quoted context omitted.

Well the “good” thing about this law is that it also classifies ALL software development (and any supporting activities!) as R&D. And yes that’s as absurd as it sounds, but it’s true.

This is a good thing. Prior to this, I had to make up a paper explaining why my team was R&D with help from an outside consulting group annually. It was always a sham. We were building product.

My understanding[0] is that building product was always categorizable as R&D (though it was up to the company to choose to categorize it that way). What was not R&D was operational expenses (production support, etc).

[0] This is based on working at a company that went through a brief period where we had to do extra tracking to be able to capitalize our time if it was possible, and then reading up on the matter to try and understand what the hell the purpose was. Possible I'm wrong about the matter--I've never been the one doing the finances.

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

#94

Post by AlotOfReading »

geraldwhen wrote: post #90
MattRix wrote: post #71

Earlier quoted context omitted.

Well the “good” thing about this law is that it also classifies ALL software development (and any supporting activities!) as R&D. And yes that’s as absurd as it sounds, but it’s true.

This is a good thing. Prior to this, I had to make up a paper explaining why my team was R&D with help from an outside consulting group annually. It was always a sham. We were building product.

The IRS definition of R&D is intended to encompass product development. Quote the tax code:

    The term generally includes all such costs incident to the development or improvement of a product.
[0] https://www.law.cornell.edu/cfr/text/26/1.174-2

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

#95

Post by atherton33 »

brianwawok wrote: post #84
spacecadet wrote: post #67

Earlier quoted context omitted.

Please explain then. Because if you spend $2m on an idea, layoff half the company, pivot to a new idea, rehire. You think it's fair on the rest of us you get to write that risk off? This. Is. Why. People. Hate. Tech.

I amortize a server because you buy it now, it does work, then is eventually obsolete and you toss it. Does a developer keep doing work for me after he quits/dies?

The code you hired the developer to write/maintain should keep working for you after he quits/dies. Or you made a real bad investment.

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

#97

Post by jrdnh »

The IRS provided incrementally helpful guidance on the types of costs that must be capitalized in September. The capitalization requirements are generally more restrictive than GAAP where only ~30% of costs are capitalized for book purposes at many companies. There are some types of software development that are outside the scope of 174 though such as UI changes that don't add new capabilities.

https://www.irs.gov/pub/irs-drop/n-23-63.pdf

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

#98

Post by [deleted] »

edgyquant wrote: post #70
MattRix wrote: post #68

Earlier quoted context omitted.

You MUST spread it over 15 years, which is brutal for most companies and will mean no longer hiring any foreign R&D or software development contractors.

Why is spreading something out over 15 years harder than spreading it out over 5?

[deleted]

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

#99

Post by ryanwaggoner »

If this persists, it seems like it’d make sense for many software companies to shift the development and ownership of their software outside of the US, and then pay licensing fees to those overseas subsidiaries for the use of the software, which isn’t taxed as R&D.

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

#100

Post by hobofan »

minton wrote: post #96

I’m confused why this is so impactful. If you have software devs, even if you don’t classify as R&D, you can deduct their full salaries, right?

How would you classify software _developers_ if not under Research & _Development_?
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