Comment by RC_ITR
3 years ago
This is disingenuous though, because they would also have 4 other years of salaries to amortize.
If anything HN should be cheering this law since it incentivizes growing your R&D team quickly and consistently.
3 years ago
This is disingenuous though, because they would also have 4 other years of salaries to amortize.
If anything HN should be cheering this law since it incentivizes growing your R&D team quickly and consistently.
If you make a million and pay a million in salaries, you have no cash left, right?
But! You get to pay taxes as if you made 800k in profit. So lucky you, you have zero dollars and now you get to pay 240,000 in tax (800k * 30%) to the government.
You're now 240k in the hole. Game over, no year two, three, or four.
This doesn't affect venture funded companies as badly because they have millions in funding and they can ride out the amortization. It does, however, affect bootstrappers trying to start a thing. Perhaps you could call them small, indie hackers?
If anything, HN should not be cheering this law as it doesn't affect large incumbents and those with millions in VC funding, but crushes the little guys.
You hire consultants. You paid them a million, you also made a million on the product they produced that year.
So they were not really 'researchers', working out on unknown with high risk probabilities, instead they were building an asset that made you money the same year.
You would deduct the payment to these consultants as expense. they pay their own taxes on their salaries.
You are left with an asset that you can make money on, year after year.
That's, I think what they are thinking.
But a) you were not prepared to turn your salaried employees into consultants b) the asset requires extensive up-keep, that costs as much as money as it was to 'create it' c) the asset value without the up-keep can become zero in year d) the asset itself is very risky and may not have value later on.
So I overall agree with your sentiment.
The gov does not want to classify software dev as 'research', but yet -- they have not established how to fairly classify it.
This is a clustferfuck.
We aren’t supposed to ask direct questions on here, but you “get” that a company charges 20% of each of the past 5 years, right?
Like, we agree that’s what depreciation/amortization is, right?
So this most affects companies that have a relatively large R&D org relative to the past few years (aka my point about growing R&D ahead of other functions).
I'm a CPA, so I super do get it.
8 replies →
How is this relevant to one year old companies?
4 replies →
How can you grow your R&D team when you’re no longer in business because your tax bill is more money than you have? It makes zero sense.
It's the opposite. It disincentivizes growing all software dev (not just R&D) by front-loading taxes.