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Reply from our CPA: “There's pretty widespread bipartisan distaste for that change and there have been multiple attempts to extend the deadline or amend the ch

Reply from our CPA: “There's pretty widespread bipartisan distaste for that change and there have been multiple attempts to extend the deadline or amend the change, but they haven't picked up steam yet. Still possible it will be changed retroactively. The saving grace is that a lot of the expenses they are talking about you needing to amortize would qualify for the R&D credits you'll be getting. So there's often a substantial offset between the two.”

silverlight 4y ago
This is what I've also heard from our CPA (that no one likes this and it shouldn't be happening), but since it's here and taxes are due in April, here we are.
- dcow 4y ago
  You asked for advice and are ignoring it. ~~Don’t take the R&D credit.~~ Don't use Section 174. Problem solved. EDIT: Let me elaborate: unless you are in the “start up phase” incurring startup costs, you are not required to follow section 174. I suspect the confusion is between how we use “startup” colloquially vs how the IRC uses “startup costs”. Once your business is up and running you are “carrying on” business, even if you aren't yet making a profit. You are only required to follow section 174 if you are choosing to classify your expenses as “startup costs” which in my experience would be very odd after the first year and even after the business is founded. Not an accountant of course, but nobody is going to tell me to pay taxes on revenue before expenses. And writing software does not automatically mean you are doing R&D. Not even in spirit. If you’re writing a script that speeds up part of your business and makes you more money, thats not “R&E”. It’s just work. EDIT2: > In the meantime, the Section 174 amendment should not cause established taxpayers to adjust their accounting methods when applying Section 162. Existing taxpayers incurring R&E costs as part of their ordinary and necessary expenses while carrying on a trade or business can continue to make deductions with confidence that legislative and judicial history support that practice. https://news.bloombergtax.com/tax-insights-and-commentary/changing-research-tax-break-rules-will-harm-fewer-than-predicted https://news.bloombergtax.com/tax-insights-and-commentary/ch...
  - MNCPAGuy 4y ago
    I don’t think your interpretation is correct. All R&E costs are now required to be capitalized. “Ordinary R&E” related to 162 doesn’t exist. If it’s any sort of R&E related expense, it’s technically supposed to be capitalized.
  - deleted 4y ago
    [deleted]
  - silverlight 4y ago
    Again, I agree with everything you are saying in your edit. It's just not what my CPA is saying the actual tax code says anymore. Honestly my main reason for starting this discussion was a) to see if anyone else's professional advice (e.g. from a CPA) was different, and b) to hopefully drum up awareness so maybe in some roundabout fashion this gets changed.
    - dcow 4y ago
      That's all fair. You're pretty persistently knocking down alternative interpretations as "not what my CPA said", though. Maybe just let them be and let people draw their own conclusions since this is a discussion. Idk. People are trying to help out and you just keep saying "not what my CPA said". Obviously we should be having this discussion with your CPA, then (:
      - silverlight 4y ago
        If anyone knows of a CPA who thinks this isn't how it works now, please let me know their contact info, as I would love to pay them to advise me on this and get a third opinion.
        snowwrestler 4y ago
        You may want to consider consulting with an actual tax lawyer, not just a CPA. CPAs are not necessarily experts on all the implications of recent changes to tax law.
giantg2 4y ago
It really says a lot about the system when the people who pass laws bipartisanly are not happy about what they just passed. It's almost like they could have, I dunno, read and thought about what they were passing. Just imagine all the other BS slipping through.
- jlmorton 4y ago
  The fact that there are unintended consequences in legislation does not mean no one read, or thought about it. These are thousands of Congressional staffers who read and study legislation, along with many more outside of Congress, but there are missed requirements, implementation bugs, and other problems in edge cases in legislation just like everything else, because the world is complex.
  - giantg2 4y ago
    There's a difference between unintended consequences from something like an n-order affect on the system due to complexity vs a clearly written piece and uncomplex rule in the law. The latter suggests that due diligence was not performed. Of these thousands of staffers, it seems nobody bothered to read and understand it. We can look to history on how bills have been passed rapidly after introduction, without enough time to read and think about them. This makes me feel like the people in power don't really pay that much attention and don't care for careful deliberation. Sure, bugs happen. But in a system that holds immense power over people's lives, we should be striving for the level of bugs to be similar to life critical safety systems and not some glitchy business website.
    - pirate787 4y ago
      The bugs are a feature. Insane complexity in the tax code creates room for legal corruption through special favors that no one understands.
      - avmich 4y ago
        That's the bug.
karmelapple 4y ago
There may be widespread bipartisan distaste, yet: 1. It passed in the 2017 tax changes 2. The Congress ending on Jan 3, 2023, did nothing about it, even though they totally could have 3. I think R&D credits will usually be significantly smaller compared to the salary paid

silverlight 4y ago

This is what I've also heard from our CPA (that no one likes this and it shouldn't be happening), but since it's here and taxes are due in April, here we are.

dcow 4y ago
You asked for advice and are ignoring it. ~~Don’t take the R&D credit.~~ Don't use Section 174. Problem solved. EDIT: Let me elaborate: unless you are in the “start up phase” incurring startup costs, you are not required to follow section 174. I suspect the confusion is between how we use “startup” colloquially vs how the IRC uses “startup costs”. Once your business is up and running you are “carrying on” business, even if you aren't yet making a profit. You are only required to follow section 174 if you are choosing to classify your expenses as “startup costs” which in my experience would be very odd after the first year and even after the business is founded. Not an accountant of course, but nobody is going to tell me to pay taxes on revenue before expenses. And writing software does not automatically mean you are doing R&D. Not even in spirit. If you’re writing a script that speeds up part of your business and makes you more money, thats not “R&E”. It’s just work. EDIT2: > In the meantime, the Section 174 amendment should not cause established taxpayers to adjust their accounting methods when applying Section 162. Existing taxpayers incurring R&E costs as part of their ordinary and necessary expenses while carrying on a trade or business can continue to make deductions with confidence that legislative and judicial history support that practice. https://news.bloombergtax.com/tax-insights-and-commentary/changing-research-tax-break-rules-will-harm-fewer-than-predicted https://news.bloombergtax.com/tax-insights-and-commentary/ch...
- MNCPAGuy 4y ago
  I don’t think your interpretation is correct. All R&E costs are now required to be capitalized. “Ordinary R&E” related to 162 doesn’t exist. If it’s any sort of R&E related expense, it’s technically supposed to be capitalized.
- deleted 4y ago
  [deleted]
- silverlight 4y ago
  Again, I agree with everything you are saying in your edit. It's just not what my CPA is saying the actual tax code says anymore. Honestly my main reason for starting this discussion was a) to see if anyone else's professional advice (e.g. from a CPA) was different, and b) to hopefully drum up awareness so maybe in some roundabout fashion this gets changed.
  - dcow 4y ago
    That's all fair. You're pretty persistently knocking down alternative interpretations as "not what my CPA said", though. Maybe just let them be and let people draw their own conclusions since this is a discussion. Idk. People are trying to help out and you just keep saying "not what my CPA said". Obviously we should be having this discussion with your CPA, then (:
    - silverlight 4y ago
      If anyone knows of a CPA who thinks this isn't how it works now, please let me know their contact info, as I would love to pay them to advise me on this and get a third opinion.
      - snowwrestler 4y ago
        You may want to consider consulting with an actual tax lawyer, not just a CPA. CPAs are not necessarily experts on all the implications of recent changes to tax law.

giantg2 4y ago

It really says a lot about the system when the people who pass laws bipartisanly are not happy about what they just passed. It's almost like they could have, I dunno, read and thought about what they were passing. Just imagine all the other BS slipping through.

jlmorton 4y ago
The fact that there are unintended consequences in legislation does not mean no one read, or thought about it. These are thousands of Congressional staffers who read and study legislation, along with many more outside of Congress, but there are missed requirements, implementation bugs, and other problems in edge cases in legislation just like everything else, because the world is complex.
- giantg2 4y ago
  There's a difference between unintended consequences from something like an n-order affect on the system due to complexity vs a clearly written piece and uncomplex rule in the law. The latter suggests that due diligence was not performed. Of these thousands of staffers, it seems nobody bothered to read and understand it. We can look to history on how bills have been passed rapidly after introduction, without enough time to read and think about them. This makes me feel like the people in power don't really pay that much attention and don't care for careful deliberation. Sure, bugs happen. But in a system that holds immense power over people's lives, we should be striving for the level of bugs to be similar to life critical safety systems and not some glitchy business website.
  - pirate787 4y ago
    The bugs are a feature. Insane complexity in the tax code creates room for legal corruption through special favors that no one understands.
    - avmich 4y ago
      That's the bug.

karmelapple 4y ago

There may be widespread bipartisan distaste, yet: 1. It passed in the 2017 tax changes 2. The Congress ending on Jan 3, 2023, did nothing about it, even though they totally could have 3. I think R&D credits will usually be significantly smaller compared to the salary paid