Comment by aarondf
3 years ago
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.
Weird to not include that in the example then.
Maybe this will help you.
If (as you imply) SW developers are critical to this year’s revenue (vs. building for future years revenue), then why don’t they go in COGS?
Seems like an easy way to solve the problem…
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How is this relevant to one year old companies?
If the developers worked on this years revenue, they should go into COGS, but if they are building things that will have value over many years they should be charged over many years.
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