4 ms·

It’s an absolutely fucked situation. In what world is revenue taxed before expenses. It’s a nuclear bomb for US innovation. Meanwhile China offers a 2x credit

It’s an absolutely fucked situation. In what world is revenue taxed *before* expenses. It’s a nuclear bomb for US innovation. Meanwhile China offers a 2x credit and the EU is almost as generous. Our accountants have been apologizing for a month now about the lack of heads up because they were confident congress would extend it like they always have. Nope.

MNCPAGuy 4y ago
Revenue taxed before expenses? That’s not what is happening or a good way of explaining it . It’s a temporary timing difference for recognizing expenses and deducting them on the tax return.
dcow 4y ago
That’s not how it works. OP is misinformed.
- CamperBob2 4y ago
  You said elsewhere that you're not an accountant. What are your qualifications?
  - dcow 4y ago
    Just another misinformed internet commenter. You are free to draw your own conclusions.
- dheera 4y ago
  That also is an issue. US tax law is so damn complicated people spend time on understanding taxes instead of science.
  - freedomben 4y ago
    Even the people who professionally do taxes (Accountants) can barely understand it and are debating it. It's utter insanity
- hesdeadjim 4y ago
  It essentially is, sorry. Having to amortize your R&D credits across five years is deadly to cash flow. The only EU country with a law like this is Belgium.
- karmelapple 4y ago
  There are a ton of people here telling you their accountants telling you otherwise, mine included. I think it would be much more helpful if you tried avoiding stating this as objective truth, and state more like your non-accountant opinion is that's how it works.
Majromax 4y ago
> In what world is revenue taxed before expenses. All of them, for capital expenditures. If I buy a widget-maker for $100,000 and use it to make a profit of $50k/yr on widget sales (net of staff and materials), then I don't have a $50k loss in my first year and $50k in profits thereafter. Instead, the cost of the machinery must be amortized (depreciated) over several years, with a five-year period being typical but not universal. In the latter case, even though I had a $100k cash outlay for the machinery, I'd still record a tax-time profit of $30k for the year ($50k operational net revenue less $100k/5 years). Is software an operational or a capital expense? There are arguments for each approach, and reasonable governments might decide the issue differently.
- silverlight 4y ago
  I think the main difference is: 1) You can't just go get a loan for "a software" like you can "a widget maker." Most businesses with these large capital assets get loans on them and then it works out nicely as you pay back the loan on the asset while you depreciate it. 2) This would be like the law saying "anything you do in the business of making widgets at all is now a capital outlay" which is obviously ridiculous. It's not that they said "if you buy expensive tools to make software now you have to capitalize them", it's written that any expense at all in service to software development is something now capitalized. Not that you agree with what's been done and I appreciate your example, but I think it does give a good contrast to see the differences.
- Firmwarrior 4y ago
  Man, this sounds pretty apocalyptic to me, but maybe I'm misunderstanding it entirely Let's say someone bootstraps a company under the current laws. They deposit $200k into a corporate bank account. In 2023 they pay themselves $50k and make no revenue. In 2024 they pull in $60k in revenue and pay themselves $50k again. For tax purposes, they'd have $60k - ($10k from year 1) - ($10k from year 2) = $40k in profit to pay corporate taxes on?
  - silverlight 4y ago
    I don’t actually know how it works for paying yourself. But if you were paying someone else, in 2024 they would get 10k carried over from 2023 and $5k from 2024. You only get 10% the first year. I am not an accountant and this is not tax advice :-)
thaumasiotes 4y ago
> It’s an absolutely fucked situation. In what world is revenue taxed before expenses. Ever heard of sales tax?
- s1artibartfast 4y ago
  sales taxes are on the buyer, not the seller.
  - thaumasiotes 4y ago
    That's false. They're collected from the seller and defined as a percentage of revenue. Adding a footnote saying "pretend someone else is paying this" won't change who pays the tax or why. When assessed on the buyer, they have the different name "use tax" and, obviously, no one bothers to pay them.

It’s an absolutely fucked situation. In what world is revenue taxed *before* expenses. It’s a nuclear bomb for US innovation. Meanwhile China offers a 2x credit

MNCPAGuy 4y ago

Revenue taxed before expenses? That’s not what is happening or a good way of explaining it . It’s a temporary timing difference for recognizing expenses and deducting them on the tax return.

dcow 4y ago

That’s not how it works. OP is misinformed.

CamperBob2 4y ago
You said elsewhere that you're not an accountant. What are your qualifications?
- dcow 4y ago
  Just another misinformed internet commenter. You are free to draw your own conclusions.
dheera 4y ago
That also is an issue. US tax law is so damn complicated people spend time on understanding taxes instead of science.
- freedomben 4y ago
  Even the people who professionally do taxes (Accountants) can barely understand it and are debating it. It's utter insanity
hesdeadjim 4y ago
It essentially is, sorry. Having to amortize your R&D credits across five years is deadly to cash flow. The only EU country with a law like this is Belgium.
karmelapple 4y ago
There are a ton of people here telling you their accountants telling you otherwise, mine included. I think it would be much more helpful if you tried avoiding stating this as objective truth, and state more like your non-accountant opinion is that's how it works.

Majromax 4y ago

> In what world is revenue taxed before expenses. All of them, for capital expenditures. If I buy a widget-maker for $100,000 and use it to make a profit of $50k/yr on widget sales (net of staff and materials), then I don't have a $50k loss in my first year and $50k in profits thereafter. Instead, the cost of the machinery must be amortized (depreciated) over several years, with a five-year period being typical but not universal. In the latter case, even though I had a $100k cash outlay for the machinery, I'd still record a tax-time profit of $30k for the year ($50k operational net revenue less $100k/5 years). Is software an operational or a capital expense? There are arguments for each approach, and reasonable governments might decide the issue differently.

silverlight 4y ago
I think the main difference is: 1) You can't just go get a loan for "a software" like you can "a widget maker." Most businesses with these large capital assets get loans on them and then it works out nicely as you pay back the loan on the asset while you depreciate it. 2) This would be like the law saying "anything you do in the business of making widgets at all is now a capital outlay" which is obviously ridiculous. It's not that they said "if you buy expensive tools to make software now you have to capitalize them", it's written that any expense at all in service to software development is something now capitalized. Not that you agree with what's been done and I appreciate your example, but I think it does give a good contrast to see the differences.
Firmwarrior 4y ago
Man, this sounds pretty apocalyptic to me, but maybe I'm misunderstanding it entirely Let's say someone bootstraps a company under the current laws. They deposit $200k into a corporate bank account. In 2023 they pay themselves $50k and make no revenue. In 2024 they pull in $60k in revenue and pay themselves $50k again. For tax purposes, they'd have $60k - ($10k from year 1) - ($10k from year 2) = $40k in profit to pay corporate taxes on?
- silverlight 4y ago
  I don’t actually know how it works for paying yourself. But if you were paying someone else, in 2024 they would get 10k carried over from 2023 and $5k from 2024. You only get 10% the first year. I am not an accountant and this is not tax advice :-)

thaumasiotes 4y ago

> It’s an absolutely fucked situation. In what world is revenue taxed before expenses. Ever heard of sales tax?

s1artibartfast 4y ago
sales taxes are on the buyer, not the seller.
- thaumasiotes 4y ago
  That's false. They're collected from the seller and defined as a percentage of revenue. Adding a footnote saying "pretend someone else is paying this" won't change who pays the tax or why. When assessed on the buyer, they have the different name "use tax" and, obviously, no one bothers to pay them.