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Also: this specifically singles out software development for ??? reasons. Office Manager: 100% expense. Software Engineer: 20% over 5 years (actually only 10%
by foobarbazetc 3y ago
Also: this specifically singles out software development for ??? reasons.
Office Manager: 100% expense.
Software Engineer: 20% over 5 years (actually only 10% for the first year).
If they’re international then 6.67% over 15 years.
Not only that, but the effect “stacks” over the years.
So year 1:
1,000,000
- 100,000
————————-
900,000 Profit
Year 2:
1,000,000
- 200,000
- 200,000
- 100,000
————————-
500,000 Profit
Year 3:
1,000,000
- 200,000
- 200,000
- 200,000
————————-
400,000 Profit
Year 4:
1,000,000
- 200,000
- 200,000
- 200,000
- 200,000
————————-
200,000 Profit
Year 5+:
1,000,000
- 200,000
- 200,000
- 200,000
- 200,000
- 200,000
————————-
0 Profit
By the time you get to year 5, you’ve paid tax on $2,000,000 of phantom profits you never had.
If you’re a C Corp that’s $420,000 in extra federal taxes (plus whatever state tax).
If you’re a smaller company you’re probably a S Corp and federal and state tax could be ~50% passed through to your personal return.
How any owner survives that, I’m not sure.
- jart 3y agoThat sounds pretty horrible. Am I correct in assuming though that once you get over the five year hump, you're OK? Also wouldn't startups mostly be paying devs out of VC funding rather than revenue the first five years?
- mwint 3y agoOnly if you’re not growing.
- mikeytag 3y agoNo. If you are growing and increasing expenses you’re always behind. The only case where you get ahead is if you stop growing or shrink.
- deleted 3y ago[deleted]
- jart 3y agoThat makes sense, thanks for clarifying. How do you think businesses would react to this? For example, I imagine self-hosted servers would need to be depreciated too, so the tech community invented cloud as the solution. Maybe this policy change will cause tech companies to hire more TVCs rather than FTEs?
- pclmulqdq 3y agoContractor expenses to develop software are also R&D. As would cloud expenses for your test environment, probably. More likely, companies will engage in activities that are arguably not "software development," including things like maintaining existing software.
- asvitkine 3y agoPresumably if a company doesn't build software in-house and "buys a product", then that's not R&D? Then, the companies making said "products" would be based in countries that don't have such draconian laws...
- cwalv 3y agoHave your 'office manager' do everything with 'no code' environments .. maybe with them using some sort of java to 'no code' compiler for parts.
- foobarbazetc 3y agoNo, you never “catch up” unless you fire every software engineer (so income and trailing five years of amortization cancel out). Year 5 is just a steady state of no more phantom profit taxes, but you never really get that extra tax you paid back if you want to keep operating at the same level or grow.
- deleted 3y ago[deleted]
- pcthrowaway 3y ago> No, you never “catch up” unless you fire every software enginee So Musk was following a playbook after all...
- rvba 3y agoAfter 5 years dont you end up with some "finished" R&D project that then can be later amortized, over say next 3 (or 5 years), so you reduce your tax base by those 2 million later on?
- Lazare 3y agoNo. After 5 years the first years salaries are considered to be a "finished" R&D project, which means there's nothing left to amortize. The only thing like that is that if, after a few years, you fire all your devs (or at least, all devs working on adding new features and building new products), then you can keep amortizing the last 4 years of salaries for your now-fired workers over the next few years, which reduces your tax base. But I mean, by that point, who cares? Any software business that has fired all its devs is over.
- sethammons 3y agoCould start a rotating door policy. You have to be rehired every period.
- Lazare 3y agoDoesn't help; what matters is your total R&D spend which - apparently according to current guidance - includes all/most of programmer salaries. If you spend is going up, you're pre-paying more and more tax on profits you haven't earned yet. If your spend is constant, you'll stay the same amount behind. If your spend declines you'll start to catch up, and if it drops to 0 and stays there for ~4 years you'll catch up to where you would have been without the law change...but if you start spending again you have to start pre-paying again.
- snarf21 3y agoSoftware was targeted directly because they couldn't agree how to change 230. There are those who want to punish the "tech" people who were "censoring" things they didn't want censored. It was designed to be tactical retribution.
- stephendause 3y agoDo you have a source for that claim?
- xvector 3y agoThe general public absolutely despises software engineers for being able to earn good money with good work-life balance. It's pure jealousy. The general public has been cheering during the tech layoffs.
- frostje 3y agoI haven't much evidence for that, and what little I did see was more about validation that a lot of large tech companies have insane, managerial bloat.
- nonethewiser 3y agoI don’t see any evidence of that. Care to share any?
- ec109685 3y agoSoftware has a long life, like buildings and whatnot, so that is likely why it is singled out versus the office manager. If you buy a building, you can’t depreciate the whole thing instantly, you do it over the life of the building.
- galaxyLogic 3y ago> If you buy a building, you can’t depreciate the whole thing instantly The same should hold of course if you buy software. But if you ask your employee to perform a task like writing a program you are not buying anything. You are paying the employee's salary whether the software they are writing ever gets out of the compiler or not. So wouldn't there be a way around this by changing the titles of software developers to "software janitors" for instance ?
- cwalv 3y agoWhat about an architect's salary? Does the firm who designs the building amortize the cost of that labor, while the purchaser of the building also amortizes the entire cost of the building? How about EEs who design the hardware? Are they included?
- imtringued 3y agoThey get acquired by companies that have unused deductions. That is how monopolies form.
- SaaStronomy 3y agoWhen you lay it out like that... Feels like this is just a move to stop companies from gaming expenses to avoid profiting. Piercing the corporate veil, if you will.
- mort96 3y agoWhat part of it is gaming anything? They're not profiting from money they're paying to their employees as salary.
- SaaStronomy 3y agoYou can balance hiring additional staff and potential tax savings (not a great idea but possible-ish). And a lot of software dev does feel like R&D (experimental development).