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Comment by aarondf

3 years ago

If a company has a million dollars in revenue and spends a million dollars on the salaries of software developers, how much tax do you think they should pay in that year?

    1,000,000 Revenue
  - 1,000,000 Salary expense
  -----------
            0 Profit

If you said "no taxes!" we're on the same page. The new law would instead work like this:

    1,000,000 Revenue
  -   200,000 1/5th Salary expense
  -----------
      800,000 Profit

Now the company must pay taxes on 800,000 of profit, because "R&D salaries," which includes software devs, must be amortized over five years.

3 comments

aarondf

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hedora  3 years ago

Note that this is an infinity percent tax rate and mostly only hits small businesses.

  • rootusrootus  3 years ago

    > this is an infinity percent tax rate

    Only if you consider just one year of it, though, unless I'm missing something. You eventually get to deduct 100%, just takes five years.