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When seeing it written out like this is simple math, this tax change seems absolutely insane. It would mean some (many?) small businesses will face tax bills th

When seeing it written out like this is simple math, this tax change seems absolutely insane. It would mean some (many?) small businesses will face tax bills that are far higher than any actual cash they have on hand. How did anyone ever think this was a good idea?

bradlys 4y ago
It was written to fuck over smaller companies. That was the point of it.
- dmix 4y ago
  Written by whom? What was the original bill?
  - fragsworth 4y ago
    If it wasn't done by accident, then it was likely lobbied for by bigger tech companies that are already profitable. They stand to benefit the most from this kind of legislation by destroying all the small competition, and by being able to buy them up for cheap.
  - ineptech 4y ago
    Answered upthread: https://news.ycombinator.com/item?id=35615264 https://news.ycombinator.com/item?id=35615264
  - light_hue_1 4y ago
    Republicans. As always they are the enemy. https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote-congress.html https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote... "the most sweeping rewrite of the tax code in decades"
- pjdesno 4y ago
  The amortization change was a deliberate part of the 2017 tax cut. One of the express purposes of the tax changes was to raise taxes on liberals, and I guess they figured that companies that take the R&D credit are run by liberals.
foobarbazetc 4y ago
It is insane. If they don’t fix it a lot of companies (and their owners) are going to go bankrupt.
- MikePlacid 4y ago
  Only those where CFOs are incompetent. And the owner is not responsible for the company’s debt, usually.
  - tomrod 4y ago
    Nope. CFOs are beholden to law as are others.
  - throwaway292939 4y ago
    What could've been done differently with a "competent" CFO?
HyperSane 4y ago
Is the IRS willing to let companies make payments of the tax over years? Would would the IRS want to put companies out of business?
nickjj 4y ago
This is a topic I know very little about but doesn't this type of "absolutely insane" thing happen to other small businesses due to estate taxes too? For example: - Your uncle owns a farm for the last 50 years - Over the 50 years the farm's land value has risen to $1,000,000 - The farm itself only generates $20,000 a year in profit which is spent on living expenses - Your uncle has no savings - Your uncle dies - A 40% federal estate tax is applied onto the farm's current value from your uncle's death (state taxes might also be added) - Whoever owns the farm is now responsible for coming up with $400,000+ or you're forced to sell the farm to cover the tax bill I might be butchering this so please correct me if I'm wrong but this feels like a system that helps larger companies because it prevents a smaller business being able to exist multiple generations.
- dragonwriter 4y ago
  Assuming your uncle was single and not able to leverage the double estate tax exemption for married couples, the $1,000,000 farm value is only $11.92 million short of the threshold at which estate tax would start to apply, and only to the amount above the threshold, at an initial marginal rate of 18%. It only reaches a marginal rate of 40% on the amount more than $1 million over the exemption threshold. If, instead of being $1 million, the farm (assuming it was the whole of the estate) was worth $13.92 million, the actual estate tax would be $345,800. Assuming the same ratio of annual profit to value in your hypothetical, the annual profit would be $278,400; so if you had no other assets to pay the tax, you’d probably need to borrow against the profits, but that shouldn’t be too hard given their magnitude.
- jaggederest 4y ago
  > Federal estate tax is due if an estate's value exceeds the estate tax exemption amount, which is $12.92 million for deaths in 2023 The numbers are much, much larger than a simple $1m family farm. Also, remember, that cap is a exemption from the value. If you have a farm worth $14m, you will have to pay approximately $400,000 in estate tax (NOT 5.6 million like you would naively calculate). At that point, if the farm doesn't generate (effectively) any revenue, and it's not mortgageable or you can't secure a personal loan, it's probably best for everyone that it be sold. You certainly wouldn't be able to e.g. pay property tax on a property that size. The estate tax is the most widely misrepresented thing in the tax code. It's designed to prevent multimillionaires and billionaires from passing down their entire fortune to the next generation intact. It almost never affects anyone but the top 0.5% wealthiest people in the country, and only then if they do absolutely no estate planning whatsoever.

bradlys 4y ago

It was written to fuck over smaller companies. That was the point of it.

dmix 4y ago
Written by whom? What was the original bill?
- fragsworth 4y ago
  If it wasn't done by accident, then it was likely lobbied for by bigger tech companies that are already profitable. They stand to benefit the most from this kind of legislation by destroying all the small competition, and by being able to buy them up for cheap.
- ineptech 4y ago
  Answered upthread: https://news.ycombinator.com/item?id=35615264 https://news.ycombinator.com/item?id=35615264
- light_hue_1 4y ago
  Republicans. As always they are the enemy. https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote-congress.html https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote... "the most sweeping rewrite of the tax code in decades"
pjdesno 4y ago
The amortization change was a deliberate part of the 2017 tax cut. One of the express purposes of the tax changes was to raise taxes on liberals, and I guess they figured that companies that take the R&D credit are run by liberals.

foobarbazetc 4y ago

It is insane. If they don’t fix it a lot of companies (and their owners) are going to go bankrupt.

MikePlacid 4y ago
Only those where CFOs are incompetent. And the owner is not responsible for the company’s debt, usually.
- tomrod 4y ago
  Nope. CFOs are beholden to law as are others.
- throwaway292939 4y ago
  What could've been done differently with a "competent" CFO?

HyperSane 4y ago

Is the IRS willing to let companies make payments of the tax over years? Would would the IRS want to put companies out of business?

nickjj 4y ago

This is a topic I know very little about but doesn't this type of "absolutely insane" thing happen to other small businesses due to estate taxes too? For example: - Your uncle owns a farm for the last 50 years - Over the 50 years the farm's land value has risen to $1,000,000 - The farm itself only generates $20,000 a year in profit which is spent on living expenses - Your uncle has no savings - Your uncle dies - A 40% federal estate tax is applied onto the farm's current value from your uncle's death (state taxes might also be added) - Whoever owns the farm is now responsible for coming up with $400,000+ or you're forced to sell the farm to cover the tax bill I might be butchering this so please correct me if I'm wrong but this feels like a system that helps larger companies because it prevents a smaller business being able to exist multiple generations.

dragonwriter 4y ago
Assuming your uncle was single and not able to leverage the double estate tax exemption for married couples, the $1,000,000 farm value is only $11.92 million short of the threshold at which estate tax would start to apply, and only to the amount above the threshold, at an initial marginal rate of 18%. It only reaches a marginal rate of 40% on the amount more than $1 million over the exemption threshold. If, instead of being $1 million, the farm (assuming it was the whole of the estate) was worth $13.92 million, the actual estate tax would be $345,800. Assuming the same ratio of annual profit to value in your hypothetical, the annual profit would be $278,400; so if you had no other assets to pay the tax, you’d probably need to borrow against the profits, but that shouldn’t be too hard given their magnitude.
jaggederest 4y ago
> Federal estate tax is due if an estate's value exceeds the estate tax exemption amount, which is $12.92 million for deaths in 2023 The numbers are much, much larger than a simple $1m family farm. Also, remember, that cap is a exemption from the value. If you have a farm worth $14m, you will have to pay approximately $400,000 in estate tax (NOT 5.6 million like you would naively calculate). At that point, if the farm doesn't generate (effectively) any revenue, and it's not mortgageable or you can't secure a personal loan, it's probably best for everyone that it be sold. You certainly wouldn't be able to e.g. pay property tax on a property that size. The estate tax is the most widely misrepresented thing in the tax code. It's designed to prevent multimillionaires and billionaires from passing down their entire fortune to the next generation intact. It almost never affects anyone but the top 0.5% wealthiest people in the country, and only then if they do absolutely no estate planning whatsoever.