4 ms·

After 4 years are you back to where you started? With the fifth year stacking on top of the other 200K chunks from the first four years? (If your hiring keeps

After 4 years are you back to where you started? With the fifth year stacking on top of the other 200K chunks from the first four years? (If your hiring keeps accelerating I guess not, so major scaling of your team would seem to be discouraged by this change.)

pclmulqdq 4y ago
Assuming everything stays the same, this rule actually results in marginally lower tax burden (since progressive income tax means that 5 years of tax at $800k < 4 years of tax at $1 million). Assuming that it changes, no. In a worst case scenario, you may be paying a lot more if you do most of your development in a peak year and then lose the revenue stream later.
- jdminhbg 4y ago
  > (since progressive income tax means that 5 years of tax at $800k < 4 years of tax at $1 million) This is corporate tax, not income tax, so is not progressive.
  - pclmulqdq 4y ago
    It's not progressive as of 2018, but it may return to being progressive over the next 5 years.
    - jdminhbg 4y ago
      It might, or it might be cut across the board, meaning you paid more by having profit recorded during a time of higher rates. Congress can do anything with those rates.
- majormajor 4y ago
  I would assume you aren't laying off your whole staff after year 1, so the comparison if costs stay the same seems like this instead? Old: Year 1: 0 Profit Year 2: 0 Profit Year 3: 0 Profit Year 4: 0 Profit Year 5: 0 Profit New: Year 1: 800K Profit Year 2: 600K Profit Year 3: 400K Profit Year 4: 200K Profit Year 5: 0 Profit E.g. stack another amortized round of annual salary each time. Even if revenue stays the same but costs increase, your Year 5 total for each is "X Profit" where X is the amount of revenue delta from Year 1 to Year 5? If rapid hiring growth followed by layoff scenarios, you are worse off here: you pay the tax on the hiring boom for at least the first year or two before your revenue might drop enough to make it not matter? If you're further away from profitability, it's maybe still a wash. Hire up to 10 Million in salaries in 1 year, but your revenue after 2 years is just 4M - you're still under the window. You only get hit by the difference in the bill if your revenue accelerates a lot (which is an OK problem to have)? So on one hand it seems like it could reduce poorly planned impulse hiring by spreading out the costs, but on the other hand the "run big losses until we make it" plan is less affected anyway because of the "big" in "run big losses"... so it seems to hurt the sustainable folks more in that case.
  - jdmichal 4y ago
    The flipside is that that 5-year amortization continues even if you did fire everyone, right? Because the costs already happened. So if we consider forward from year 5 of your example, with everyone being fired at year 5: Old: Year 6: 1000K profit Year 7: 1000K profit Year 8: 1000K profit Year 9: 1000K profit Year 10: 1000K profit New: Year 6: 200K profit (End of year 1 amortization) Year 7: 400K profit (End of year 2 amortization) Year 8: 600K profit (End of year 3 amortization) Year 9: 800K profit (End of year 4 amortization) Year 10: 1000K profit (End of year 5 amortization) Of course this "wind-down" period is unhelpful if you're actually shuttering the business...
  - taxopinion 4y ago
    You didn't generate an additional $1m in revenue in years 2-5. So in a situation where you get paid a $1m contract once, and pay $1m in salaries every year, here's what happens. Year 2022: $1m revenue, -$1m expenses amortized to $200k: $800k profit, approximately 20% ($160k) is paid to tax. Year 2023: -$1m expenses amortized to $200k, previous year's $200k: -$400k loss, carryforward. You cannot carryback 2023 losses to 2022 taxes. The carryback is how Congress will resolve the issue for people who paid the tax. The dispute is that you paid $160k in tax in year 1. Is that inefficient? In my opinion, it is. You paid $1m in salaries!
    - majormajor 4y ago
      Is a business that generates 1M revenue off of 1M salary for one year, and then nothing for 4 years, worth discussing here?
      - kevingadd 4y ago
        In markets like game development it's not uncommon to have one big release that generates a lot of revenue in one year, and then not release anything for a couple years and have minimal revenue as a result while you keep paying salaries. Carryforward won't help you in that case. Without this stupid amortization you could at least write off a full year's salaries against your launch income.
pcthrowaway 4y ago
At the same time, wouldn't it discourage reducing headcount (or at least headcount expenditure) for companies with roughly flat or linear revenue growth (see all the big tech layoffs), because you'd be paying more in taxes next year, etc. ? edit: never mind, I completely misunderstood. It really only seems to harm "moonshot" companies; big tech and sustainable companies appear to be largely unaffected. If anything they may benefit as it will be more costly for upstarts to try competing

pclmulqdq 4y ago

Assuming everything stays the same, this rule actually results in marginally lower tax burden (since progressive income tax means that 5 years of tax at $800k < 4 years of tax at $1 million). Assuming that it changes, no. In a worst case scenario, you may be paying a lot more if you do most of your development in a peak year and then lose the revenue stream later.

jdminhbg 4y ago
> (since progressive income tax means that 5 years of tax at $800k < 4 years of tax at $1 million) This is corporate tax, not income tax, so is not progressive.
- pclmulqdq 4y ago
  It's not progressive as of 2018, but it may return to being progressive over the next 5 years.
  - jdminhbg 4y ago
    It might, or it might be cut across the board, meaning you paid more by having profit recorded during a time of higher rates. Congress can do anything with those rates.
majormajor 4y ago
I would assume you aren't laying off your whole staff after year 1, so the comparison if costs stay the same seems like this instead? Old: Year 1: 0 Profit Year 2: 0 Profit Year 3: 0 Profit Year 4: 0 Profit Year 5: 0 Profit New: Year 1: 800K Profit Year 2: 600K Profit Year 3: 400K Profit Year 4: 200K Profit Year 5: 0 Profit E.g. stack another amortized round of annual salary each time. Even if revenue stays the same but costs increase, your Year 5 total for each is "X Profit" where X is the amount of revenue delta from Year 1 to Year 5? If rapid hiring growth followed by layoff scenarios, you are worse off here: you pay the tax on the hiring boom for at least the first year or two before your revenue might drop enough to make it not matter? If you're further away from profitability, it's maybe still a wash. Hire up to 10 Million in salaries in 1 year, but your revenue after 2 years is just 4M - you're still under the window. You only get hit by the difference in the bill if your revenue accelerates a lot (which is an OK problem to have)? So on one hand it seems like it could reduce poorly planned impulse hiring by spreading out the costs, but on the other hand the "run big losses until we make it" plan is less affected anyway because of the "big" in "run big losses"... so it seems to hurt the sustainable folks more in that case.
- jdmichal 4y ago
  The flipside is that that 5-year amortization continues even if you did fire everyone, right? Because the costs already happened. So if we consider forward from year 5 of your example, with everyone being fired at year 5: Old: Year 6: 1000K profit Year 7: 1000K profit Year 8: 1000K profit Year 9: 1000K profit Year 10: 1000K profit New: Year 6: 200K profit (End of year 1 amortization) Year 7: 400K profit (End of year 2 amortization) Year 8: 600K profit (End of year 3 amortization) Year 9: 800K profit (End of year 4 amortization) Year 10: 1000K profit (End of year 5 amortization) Of course this "wind-down" period is unhelpful if you're actually shuttering the business...
- taxopinion 4y ago
  You didn't generate an additional $1m in revenue in years 2-5. So in a situation where you get paid a $1m contract once, and pay $1m in salaries every year, here's what happens. Year 2022: $1m revenue, -$1m expenses amortized to $200k: $800k profit, approximately 20% ($160k) is paid to tax. Year 2023: -$1m expenses amortized to $200k, previous year's $200k: -$400k loss, carryforward. You cannot carryback 2023 losses to 2022 taxes. The carryback is how Congress will resolve the issue for people who paid the tax. The dispute is that you paid $160k in tax in year 1. Is that inefficient? In my opinion, it is. You paid $1m in salaries!
  - majormajor 4y ago
    Is a business that generates 1M revenue off of 1M salary for one year, and then nothing for 4 years, worth discussing here?
    - kevingadd 4y ago
      In markets like game development it's not uncommon to have one big release that generates a lot of revenue in one year, and then not release anything for a couple years and have minimal revenue as a result while you keep paying salaries. Carryforward won't help you in that case. Without this stupid amortization you could at least write off a full year's salaries against your launch income.

pcthrowaway 4y ago

At the same time, wouldn't it discourage reducing headcount (or at least headcount expenditure) for companies with roughly flat or linear revenue growth (see all the big tech layoffs), because you'd be paying more in taxes next year, etc. ? edit: never mind, I completely misunderstood. It really only seems to harm "moonshot" companies; big tech and sustainable companies appear to be largely unaffected. If anything they may benefit as it will be more costly for upstarts to try competing