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0 pointsdemosthanos9mo ago0 comments

We're not talking about a tax deduction in the sense of a special privilege, we're talking about simple calculations of profit.

Before this change, tax for software development was calculated against:

* Profit = Revenue - Expenses

And software developer salaries fell neatly into Expenses unless you were looking for an R&D tax credit.

After this change, tax for software development is calculated against this new equation:

* Profit = Revenue - (1/5 * YearlyExpenses[-1]) - (1/5 * YearlyExpenses[-2]) - (1/5 * YearlyExpenses[-3]) - (1/5 * YearlyExpenses[-4]) - (1/5 * YearlyExpenses[-5])

Which means that if you are in Year 1 of operation, your values for YearlyExpenses[-2:-5] are all 0 and you only get to deduct 1/5 of your actual operating costs for the year from your "profit". So you can be in the hole but still owe taxes on your "profit" for the year because what you spent money on was classified as R&D.

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tommy_axle9mo ago

Wasn't there something when this went into effect about the mid-year being the start so it is 10% in years 1 and 6?

demosthanosOP9mo ago

Yeah, I just read that. So it's actually 10-20-20-20-20-10, which is both weirder and also slightly worse than my formula above.

rbultje9mo ago

That part is not so weird, you didn't pay all salaries on January 1st. But amortizing salaries in general is ridiculous.

lesuorac9mo ago

It is a subsidy!

Why should money spent on software _development_ not have to be deprecated over time like other money spent on _development_?

I get that it sucks from a cash flow standpoint but the same is going to be true of other R&D expenses. It's just that we're more exposed to this specific R&D expenditure and not others.

anp9mo ago

The root of this subthread makes it clear why the current provisions to force software expenses to be amortized are different than other kinds of R&D.

lesuorac9mo ago

The article makes it clear it's a subsidy.

> Originally enacted in 1954, Sec. 174 has historically allowed taxpayers to deduct SRE expenditures in the year incurred. Its original aim was to level the playing field for small businesses, those without dedicated research teams, that may be unable to deduct product development expenses under Sec. 162 because the costs were not ordinary and necessary expenses paid or incurred in carrying on a trade or business

Straight-up, any deviation in the tax code for a special group is always a subsidy.

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demosthanosOP9mo ago

I mean, yes, it will be true for other R&D types. But that's also new and also broken for the same reason: it means new R&D companies are at a massive disadvantage in their first few years compared to the established players who have lots of expenses queued up to deduct. It's wealth redistribution from young startups to established players who have 5 years of past expenses to use in their favor, and that is going to be a very bad thing for the health and vibrancy of our economy.

And, as a sibling points out (and as I pointed out in a comment at the top level), software is in this regime singled out from all other possible R&D expenses, making it particularly vulnerable. A skilled accountant/lawyer can probably turn big chunks of other R&D expenses into something that doesn't fall under 174. No amount of skill can do that for software, because we're singled out.

tomrod9mo ago

Because you slinging a React component or Vibecoding a security pile requires no Technology Readiness Level assessment nor does it have development liability. Rather, what we call Software Development is more appropriately labeled Software Engineering.

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0 pointsdemosthanos9mo ago0 comments

We're not talking about a tax deduction in the sense of a special privilege, we're talking about simple calculations of profit.

Before this change, tax for software development was calculated against:

* Profit = Revenue - Expenses

And software developer salaries fell neatly into Expenses unless you were looking for an R&D tax credit.

After this change, tax for software development is calculated against this new equation:

* Profit = Revenue - (1/5 * YearlyExpenses[-1]) - (1/5 * YearlyExpenses[-2]) - (1/5 * YearlyExpenses[-3]) - (1/5 * YearlyExpenses[-4]) - (1/5 * YearlyExpenses[-5])

0 comments

tommy_axle9mo ago

Wasn't there something when this went into effect about the mid-year being the start so it is 10% in years 1 and 6?

demosthanosOP9mo ago

Yeah, I just read that. So it's actually 10-20-20-20-20-10, which is both weirder and also slightly worse than my formula above.

rbultje9mo ago

That part is not so weird, you didn't pay all salaries on January 1st. But amortizing salaries in general is ridiculous.

lesuorac9mo ago

It is a subsidy!

Why should money spent on software _development_ not have to be deprecated over time like other money spent on _development_?

I get that it sucks from a cash flow standpoint but the same is going to be true of other R&D expenses. It's just that we're more exposed to this specific R&D expenditure and not others.

anp9mo ago

The root of this subthread makes it clear why the current provisions to force software expenses to be amortized are different than other kinds of R&D.

lesuorac9mo ago

The article makes it clear it's a subsidy.

Straight-up, any deviation in the tax code for a special group is always a subsidy.

1 more reply

demosthanosOP9mo ago

tomrod9mo ago

j / k navigate · click thread line to collapse