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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

#971

Post by samus »

anymouse123456 wrote: post #563
samus wrote: post #558

Earlier quoted context omitted.

There is bipartisan support to repeal the change. Meanwhile, further changes to the tax code are being prepared by the administration, very probably containing further such time-delayed footguns that will be the problem of the next administration to clean up, making them look like they raise taxes.

This change was added in 2017, triggered in 2021/2022. It's been the policy for years now. There is very little pressure on elected officials because big cos can afford it and it bankrupts their tiny future disruptors. Why would you let it be fixed?

Nope, payroll is a significant part of the expenses even of FAANGs. Or at least of the entities that employ people in the US. And they very much benefit from the startup ecosystem as they can just cherry-pick among them, buy up prospective disruptors and new technologies, and disassemble them for spare parts.

Anyway, here is more information about the bill. Let's see what happens to it: https://www.kbkg.com/feature/lawmakers-introduce-bill-to-ret...

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

#972

Post by mulmen »

rayiner wrote: post #828
bunnie wrote: post #537

Earlier quoted context omitted.

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…

> 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. That’s how it works for every business! If Jim Bean builds a distillation facility it has to amortize the investment in that over time. If the distillation facility doesn’t pan out, then it doesn’t get a refund for the taxes p…

This is different because the value of the distillation facility is not defined as “the wages of the builders”.

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

#973

Post by patmcc »

demosito666 wrote: post #577
patmcc wrote: post #480

Earlier quoted context omitted.

If they're producing a capital asset, you do retain the right to the fruits of their labor, even if they quit. The rationale behind amortization isn't exactly the idea that the asset can be sold, it's that the asset is producing revenue over multiple years. For software, the asset is the codebase. Let's say you hire a single software dev, for one year, and they write Excel++, which you can sell for the next ten years…

> The issue in the real world is that's not how the software industry actually works, 99% of the time. What would be a more appropriate model from accounting perspective?

Honestly it'd depend a ton of the particular industry/company/programmer. Some are definitely creating capital assets and should be amortized, others are "repairs and maintenance" which can be expenses. I'd probably defer to treating them as expenses, but allow for amortization if the company desires, and maybe have some audit possibility on that if it looks like the big players are gaming that somehow.

Part of the complication here is companies generally really like amortizing stuff. It lets you smooth your profit across years which is usually better both for tax purposes and for your financial reporting for the market. So this kind of change is fine or even good for a company like Google, but can really suck for a small bootstrapped SAAS. This is why I'd allow companies to pick, with some degree of latitude.

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

#974

Post by hn_acc1 »

thegrimmest wrote: post #737
iancmceachern wrote: post #733

Earlier quoted context omitted.

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.

Maybe when churches start obeying the "no pushing any political candidate" laws and stop pushing things like "all scientists are evil", it would be a more acceptable position for those outside the church? Seriously - I've seen (not joking) statements like: all scientists know god exists, but deny it because they don't want to follow the laws of the bible. This was before I deconverted.

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

#975

Post by freeAgent »

I don't understand why this article is written as though amortization of R&D spending's costs is the same as completely eliminating their tax benefit. It seems that this essentially causes a large spike in tax revenue in year 0, which will revert to the mean in years 5-15. Companies now amortizing R&D essentially just have to build up those years of R&D spending backlog. Once they have reached their amortization threshold, they're essentially receiving the same tax break they had before.

Right?

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

#976

Post by majewsky »

freeAgent wrote: post #975

I don't understand why this article is written as though amortization of R&D spending's costs is the same as completely eliminating their tax benefit. It seems that this essentially causes a large spike in tax revenue in year 0, which will revert to the mean in years 5-15. Companies now amortizing R&D essentially just have to build up those years of R&D spending backlog. Once they have reached their amortization thre…

In the stable state, both situations (immediate writeoff vs. amortization) would indeed be identical (assuming constant salary expenses over time).

The problem is that, when switching from the immediate writeoff regime to the amortization regime, you do not have a backlog of past-year expenses that are in the process of being amortized, so there is a sudden jump from being able to write off 100% of relevant expenses to only 20% of them.

Given that shareholders are notoriously interested in short-term profits, hitting profit targets requires either expanding revenue or slashing expenses.

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

#977

Post by freeAgent »

majewsky wrote: post #976
freeAgent wrote: post #975

I don't understand why this article is written as though amortization of R&D spending's costs is the same as completely eliminating their tax benefit. It seems that this essentially causes a large spike in tax revenue in year 0, which will revert to the mean in years 5-15. Companies now amortizing R&D essentially just have to build up those years of R&D spending backlog. Once they have reached their amortization thre…

In the stable state, both situations (immediate writeoff vs. amortization) would indeed be identical (assuming constant salary expenses over time). The problem is that, when switching from the immediate writeoff regime to the amortization regime, you do not have a backlog of past-year expenses that are in the process of being amortized, so there is a sudden jump from being able to write off 100% of relevant expenses…

Yeah, and that cliff is why they put this change into the 2017 tax reform. It'll goose federal tax revenue for 5 years in the back half of the CBO's 10-year projections to make the changes appear revenue neutral overall. In any case, the impact started in 2022 and it's now 2025. We're already over halfway to steady-state.

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

#978

Post by gnopgnip »

Schiendelman wrote: post #904
gnopgnip wrote: post #795

Earlier quoted context omitted.

Generally it’s not a choice. Valuable assets are required to be amortized over their useful life with limited exceptions

Your previous comment mixed tangible and intangible. R&D is intangible, so I focused there. Your response mostly applies to tangible. I think the other reply to you here makes a great point. Let's try not to talk past each other!

Valuable assets includes both tangible and intagible, it applies to both

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

#979

Post by tmp10423288442 »

Tokumei-no-hito wrote: post #953
nostrademons wrote: post #710

Earlier quoted context omitted.

It depends on the department. My salary (in a mature product) was already amortized - I suspect the same is true of all their other mature products like Search, Maps, GMail, Chrome, YouTube, etc. But I think they were deducting salaries in the more research-like areas like Gemini, Jax, Assistant, etc. So there is net still a fairly large charge related to it, even if it isn't as large as it could be.

pardon my ignorance but why would they amortize some and not others?

- In a steady state where you're spending the same amount every year, the tax burden of amortized vs. unamortized accounting makes no difference. It only matters for R&D - i.e., new products.

- I read once, although I have no idea how accurate this is, that a company could classify maintenance expenses (i.e., paying SREs and some SWEs to keep the service running and fix bugs) as non-R&D and therefore be able to amortize. That's another advantage to mature services over new services.

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

#980

Post by Schiendelman »

gnopgnip wrote: post #978
Schiendelman wrote: post #904

Earlier quoted context omitted.

Your previous comment mixed tangible and intangible. R&D is intangible, so I focused there. Your response mostly applies to tangible. I think the other reply to you here makes a great point. Let's try not to talk past each other!

Valuable assets includes both tangible and intagible, it applies to both

Can you help me understand what you're arguing?
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