Comment by nocoiner
3 years ago
You know, this is pretty clearly the right answer. Software developer salaries are ordinary business expenses. There’s some alarming language in the section about deductibility of R&E expenses, but core business functions aren’t R&E.
Really perceptive comment.
All sw dev is considered R&E. Soo you have no choice
That doesn't make sense since there is both greenfield development and maintenance development. By this logic we would have to track our hours and write down when we do maintenance work and when we do R&D.
You do, if you want to claim the tax credit. But the R&D tax credit and R&E under Section 174 are two completely different things.
Until 2022, companies had the choice between expensing and amortizing software development under Section 174. (Section 174 specifically calls out all software development as falling under that section.) So they would only time track when they wanted to get the R&D tax credit, which only covers a portion of software development activities. R&D tax credit software development is a much narrower scope than R&E software development. So it didn't matter until now.
6 replies →
> That doesn't make sense
And yet that's the letter of the law. R&D expenses must be amortized over 5 years. Software development must be counted as R&D.
There is no consideration in the law as written for categorizing software development differently.
That's the reason this whole scenario is a problem in the first place.
> All sw dev is considered R&E
In the UK the relevant document is CIRD81900[0] which sets out what conditions must be satisfied to qualify for R&D tax relief. It's lengthy, but worth the read.
One section that stands out is:
"A process, material, device, product, service or source of knowledge does not become an advance in science or technology simply because science or technology is used in its creation"
[0] https://www.gov.uk/hmrc-internal-manuals/corporate-intangibl...
Unsure if you were getting at this too, but software development in the UK can absolutely be ineligible for R&D tax credits yet still require treatment as capital expenditure for tax purposes (and thus not simply fully deductible in year 1 like revenue expenditure) - see [0] from the AAT on this.
Disclaimer: Not an accountant, not your accountant, get professional advice.
[0] https://www.att.org.uk/tax-treatment-software-and-website-co...
2 replies →
In NL, there's a tax relief for R&D, but it will have to be approved on forehand, and has to be described and estimated in detail, and will be audited. The tax relief gives you a discount on employee taxes.
This is categorically untrue, many developers are COGS.
> The salaries of the team responsible for keeping the production instance of the software up and running should also be included in COGS. All other R&D expenses should not be in COGS.
https://www.saas-capital.com/blog-posts/what-should-be-inclu...
Great source! To add:
> Amortized software development costs (we discourage capitalizing these costs in the first place)
Emphasis mine. They're saying if you amortize your other software dev as R&E (stuff that isn't ops/infra/etc. and thus considered COGS) then it doesn't count towards your COGS. But then what they're pretty clearly saying in the parenthetical is that they don't recommend doing that in the first place, which implies that you have a choice.
> 174(c)(3)SoftwareDevelopment > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
My understanding is the problem is the phrase "any amount paid or incurred in connection with". It is unambiguous and provides no leeway. Any costs related to software development are R&D. Period.
1 reply →
I don’t think the law says all software development has to be part of a mandatory R&E credit.
It says “For the purposes of this section…”, so it doesn’t apply if you’re not claiming R&E credit.
From https://uscode.house.gov/view.xhtml?req=(title:26%20section:...
> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
Where "this section" is "§174. Amortization of research and experimental expenditures"
Tax credit is separate from amortization afaict.
4 replies →
Stop parroting this nonsense. If you really think gluing a React UI onto MongoDB and then jamming it into an Electron app so that you can charge a subscription for your juice-pulp-bag-squeezing-machine is “research and experimental expenditure” you have either drown yourself so far in Kool-Aid that your skin is blue or you’re certifiably committing tax fraud.
> (3) Software development
> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
I'm just "parroting" from house.gov
8 replies →
>> All sw dev is considered R&E. Soo you have no choice
You certainly have a choice to claim it as such or not.
More importantly, why TF has the government been paying software engineers salary all these years? That's the real question. Also, has it occurred to anyone that this may be why the big tech companies are laying off engineers in droves?
The government has not been paying software engineer salaries in any sense. This is in regards to profit calculation where business typically pays taxes on profits, so a zero profit company whose largest expense is developers gets a "fuck you, go out of business now" tax bill.
2 replies →