Comment by usefulperstive1
3 years ago
> ...and spend $90k making the software
Well, did you spend the $90k on W2 salaried employees, or to a vendor?
> Essentially, all R&E expenses...
The R&D tax credit was too good to be true anyway.
The crazy loopholes are crazy. What were people expecting?
Congress was not going to let people outsource "R&D", which in the bulk of cases is large companies like Accenture and small companies like bullshit agencies doing straight-up software customization that had little to do with real research or development.
Insofar as it affects startups, the amended law seems to exist explicitly to rein in the pro-forma declarations / reports template-generated by non-specialists.
Every tax or HR related firm in existence has been hawking this bullshit to tech companies for a while. Truly a bunch of parasites.
Congress needs to repeal the R&D tax credit as it exists today and allow people to ordinarily expense whatever it is that they are doing.
If it feels there is a good reason to make the money-to-US-salaries tax-reduced, it should make a simple blanket declaration checkbox for a narrow set of qualifications that would obviate the need of "R&D tax credit specialists."
This is not the same as the tax credit. That is a different deal. Even if you do not claim the credit at all, you still have to do this amortization.
> Well, did you spend the $90k on W2 salaried employees, or to a vendor?
It wouldn't matter, if the expense is related to the business of developing software, it counts now.
As a solo developer, I guess I’m going to start tracking how fast I type and the size of my code commits each day, and that, my dear IRS friend, is the only part of my day I spent “developing software.”
The reality is that even if you hire a “software developer,” they aren’t going to spend 100% on it. So now you have a situation where the IRS is supposed to audit how? Watch how much support you did? How much training and coaching other developers? How much email/scheduling/admin bs? Was that meeting about software development or customer research? The fools who write these laws are just ridiculously out of touch.
That's not what this is about. It's to do with a situation where companies were trying to make the IRS believe that money they spent on S/W dev was a valid R&D expense (so they could claim some R&D credit and hence pay less tax), and the IRS said "nope, that seems to be not valid because we don't see S/W as really R&D". So...some campaign contributions later and voila there is a law saying definitively that S/W does count. Those companies asked for this change. Now, possibly the whole thing got lost in translation and became a terrible bad thing, but most likely not. Often these things need to be read in the context they apply, which is not "globally".
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There are obviously stupid loopholes in tax law that serve no wider benefit, but that's not the case here. This was very intentional and not crazy at all.
The whole reason this tax credit exists is to promote more R&D. If you are doing heavy R&D you can pay less income taxes. It's an incentive for companies to not hoard cash but to put it into creating new business and opportunities and stay competitive. They still have to pay payroll tax, which is a substantial portion of the tax companies pay to the federal government anyways. But even that too is an incentive for companies to run more efficiently: the fewer people you have on payroll and the more R&D you do, the more your company is an innovation machine - that ends up being good for the economy.
There are obviously lots of cases where American companies use loop holes to not pay taxes (especially on international income). That's a separate debate. But if you see a big company (like Amazon) not paying income taxes, it could mean they heavily invest in R&D. That's why when I hear politicians whining about this, I know they are not always doing so in good faith.
You appear to be conflating R&E expenses (Section 174) with the R&D credit (Section 41). They are related but not the same thing, and the original question was about the former not the latter.