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The issue here is in the way it is deducted. Previously, $1.000.000 spent on R&D in 2023 would result in a $1.000.000 deduction on your 2023 taxes. Under the n
by crote 4y ago
The issue here is in the way it is deducted.
Previously, $1.000.000 spent on R&D in 2023 would result in a $1.000.000 deduction on your 2023 taxes. Under the new system the same spending would result in a $200.000 deduction in 2023, $200.000 in 2024, $200.000 in 2025, $200.000 in 2026, and $200.000 in 2027.
You still get the same deduction, but spread out over multiple years. However, it also means that you can now deduct $800.000 less in 2023 than expected, resulting in a far higher tax bill this year! If you are a startup you probably don't have that spare $800.000 just lying around doing nothing.
- eschneider 4y agoThat's still taxed off profits, not gross.
- qeternity 4y agoYes, but it's changing the way profits are calculated, which massively impacts cash flows.
- admax88qqq 4y agoIf I can only deduct 200k of the 1m I spent that inflates my net profits by 800k that I dont actually have, because I spent it on what I thought was an expense.
- lokar 4y agoYou deduct (eligible) expenses from revenue to get (taxable) profit
- mminer237 4y agoIf you make $2,000,000 gross, spend $800,000 on operating expenses, and $1,000,000 on R&D, you practically have $200,000 profit; but you have pay $210,000 in federal tax on $1,000,000.
- xmcqdpt2 4y agoWell no, you have a 1.2M profit, and decided to reinvest 1M into R&D to produce a software asset. It's bad that the tax treatment changes suddenly because businesses need stability, but the change itself is perfectly rational.
- tomrod 4y agoIt changes what is considered a deductible expense. Profits = Revenue net Costs Taxes are a cost. Taxes are defined as some rate t, tax = t * (Revenue net Deductible Expenses) So Profits = Revenue - t * (Revenue - Deductible Expense) - Non-deductible Expense Percent of t is small relative to the value of 100% applied to non-deductible expense. What this has done is to take salary, deployment infra, everything, from Deductible to Non-deductible expense, leaving 20% of what was there before. That is very large.
- 0zemp1c 4y agoits like a weird inverse of paying quarterly taxes...the same goal - more of your money stays with the government longer
- deltarholamda 4y ago>The issue here is in the way it is deducted. The issue is that the rules changed. Businesses that relied on the former rules are now faced with a (possibly insurmountable) challenge to accommodate the new rules. Washington loves to fiddle with tax rules, and lobbyists spend a lot of time and money encouraging it, but nobody can anticipate the ripple effects. It all looks great on CBO spreadsheets and congressional press releases, but the real-world impacts can be devastating.
- ricardobayes 4y agoI only hope they include some kind of small letter that the same person needs to still be employed to get the amortization - I think that's actually implied by it. The same way you got to keep a machine to keep deducting it. I think the gov't got fed up of the mass layoffs and this is how they are fixing it.
- grogers 4y agoIf you can deduct the remaining amortized expense immediately upon termination, could companies just fire everybody and rehire them the next day?
- hedgehog 4y agoAssuming you had no other expenses the tax bill would be $168k on the $800k right? So what we're saying is a business with $1M each in revenue and salary expense would have an additional $168k in current year tax expense?