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Tell HN: Submit comments to IRS re tax treatment of software dev expenses

• tldrthelaw 3y ago
  I wrote about it here: https://news.bloombergtax.com/tax-insights-and-commentary/new-irs-r-e-rules-risk-stifling-software-innovation-for-startups https://news.bloombergtax.com/tax-insights-and-commentary/ne... Please do submit comments.
• Kon-Peki 3y ago
  I had forgotten about this, it's hard to believe that it still hasn't been fixed. I've read through a number of the comments, and I guess I shouldn't be too surprised to see that most are asking the IRS to do the job of the US Congress. This fills me with despair.
  • hn_throwaway_99 3y ago
    That's the problem with basically the entire federal government these days. The US Congress is as near to non-functional as one could imagine. This, actual rule-making has been "delegated by dysfunction" to other entities like the Supreme Court, Executive Orders, and federal agencies. I really wonder how long this can go on. Our system of checks-and-balances only works when rational actors believe that compromise is necessary to get things done. When you have actors that believe that shutting things down completely is a benefit because it gets them more media time and rabid followers, the whole thing breaks down. Perhaps at some point we'll be able to move more towards a Westminster parliamentary model, where the party in power at any particular time basically controls both the executive and legislative branches simultaneously.
    • gustavus 3y ago
      > Perhaps at some point we'll be able to move more towards a Westminster parliamentary model, where the party in power at any particular time basically controls both the executive and legislative branches simultaneously This for me always been one of the most frightening aspects of the parliamentary model. There aren't checks and balances, instead the party in power, as long as they have enough power can rule with absolute authority. You fail to understand that the US constitution was not created to provide for an efficient government it was designed to protect individual rights. The much bigger problem in my mind is that we only have 435 representatives and so each congressman represents far too many people, which allows the loudest and craziest vocies to dominate. Instead if we doubled or tripled the size of congress we'd have quite a bit more nuance and the government would be more representative.
      • no_wizard 3y ago
        not to mention we semi-divorced (and I think in some cases totally divorced) state politics from federal politics when we started voting directly for Senators in the other house. Before that, your governor would choose who the senator was via whatever the process the state had for this. It had a knockoff effect of people caring a lot more about their state and local politics and keeping some governing power in the states leadership. Both I sincerely believe were worthwhile goals, as many people get caught up in federal politics and there is far less population participation in state / local politics as a result. I do believe quite strongly that we need a bigger House of Representatives too. I 100% agree on that. I don’t think the founders foresaw a world with 300 million people living in the US
• hesdeadjim 3y ago
  Section 174 hit my company hard, it’s such bullshit.
• ezekg 3y ago
  Clickable link: https://www.regulations.gov/document/IRS-2023-0040-0003/comment https://www.regulations.gov/document/IRS-2023-0040-0003/comm...
• tikkun 3y ago
  There are 43 comments so far. I was expecting thousands of comments. Comments can be with your name, company name, or anonymous. There's no required info you need to give other than the comment, no account required. Submitting a comment takes 'time to write comment + 5 seconds' - it was very easy. The comments have been open for 58 days, and they close in 20 days. Side note: Which of our reps should we call about this, how do we find which rep applies to us, and how can we contact them and what to say? It'd be nice if someone made something like Resistbot for this. (Though, after checking out the updated version of Resistbot, it seems like Resistbot will in fact work for this. https://resist.bot https://resist.bot)
  • mNovak 3y ago
    I was also surprised how few comments there are. It has been making the rounds in the SBIR community, (you'll see that if you read a few public comments) but I saw almost no one mentioning the software side of it. I submitted one on behalf of my company. Others should too, it's really very easy to do.
  • pclmulqdq 3y ago
    Total number of comments also doesn't usually matter in these government comment periods (or at least not in the way you think it does). They are looking for new arguments to support a position one way or the other, not 10000 people commenting with the same take. If 10000 people say "this rule change is bad because my tax bill is higher," that's confirmation that it's a revenue driver, not an indication that it's a bad rule.
    • NullPrefix 3y ago
      Laffer curve says that increasing tax rate doesn't necessarily increase total tax revenue. If the tax is too high, business becomes unprofitable and goes bust. A closed shop is bringing in 0 taxes. Even the Mafia understood that you can't squeeze the shops too hard or they'll just stop paying.
  • csomar 3y ago
    Welcome to the world where these “disruptive” changes gives executives ideas how to weaken the “adversary” even if it means it is going to damage the industry. Everyone is probably looking to how to re-adjust in this new environment. Big companies will certainly like since they have liquidity. At the end of the day, the tax pressure will be the same. This is just a liquidity event and it will kill small players with no capital connections.
• jncfhnb 3y ago
  What’s the argument on making software not being an investment Aside from “it’s bad for my startup”
  • joebob42 3y ago
    Very few pieces of software in my experience are doing anything 5 years later. 5 years seems like an extremely long time to be amortizing over.
    • jncfhnb 3y ago
      Why?
      • cscurmudgeon 3y ago
        Because the world changes.
      • twodave 3y ago
        I think the obvious implication is that software development is expensive, ongoing and tends to result in relatively short term ROI, and therefore the amortization schedule of 5 years increases the likelihood smaller business will never collect most of it, while larger business that can absorb more up-front costs will be able to collect it pretty easily.
        • jncfhnb 3y ago
          That is not an argument for tax treatment of whether something is an asset
          • twodave 3y ago
            I wasn’t trying to make that argument, but I were I would argue that software itself is more like a liability, or, at the most, a current asset[0]. Source code has no inherent value, and in fact the more you have the more expensive it is. [0] https://www.investopedia.com/terms/c/currentassets.asp https://www.investopedia.com/terms/c/currentassets.asp
• boredumb 3y ago
  Trailing off a week of thinking about the executive order on AI research, i'm finding it harder to not think there is an active effort to stifle innovation and progress among little folks.
• deleted 3y ago
  [deleted]
• toomuchtodo 3y ago
  Please provide a template for quick customization and submission. This will help scale with the remaining time left.
• CoastalCoder 3y ago
  Anyone have a sense of how much this has contributed to the past year's layoffs? The only factor I usually hear about is raised interest rates.
  • lgleason 3y ago
    I was wondering the same thing. Granted if interest rates were low they could just take on more debt or almost no cost, but with hight interest rates it makes our industry even more rate sensitive.
• pclmulqdq 3y ago
  Most of the arguments from startup people about these rules come down to "this change costs me a lot of money" rather than "this change is bad accounting." Does anyone know what the arguments are to support the latter? When this rule was changed, it was framed as eliminating a tax loophole: R&D work is basically a capital investment, since you are effectively buying and improving intellectual property during the R&D process. That suggests that this sort of expense really is a capex that should be depreciated over the life of the intellectual property rather than an opex. I personally think that this is a compelling line of reasoning. I think there's a good argument that a forced 5-year amortization schedule is far too long for something like a random SaaS, but I'm not sure if I have a good argument that this is bad accounting otherwise. I don't expect that the IRS will be all that sympathetic to Silicon Valley complaining that one of their favorite loopholes is gone otherwise.
  • 1123581321 3y ago
    The accounting argument is that not all software development is R&D work or creating an asset with long-term value. A lot of it is operational work or closely tied to the revenue that pays for it (so analogous to COGS.) There is also an accounting and tax principle that small/solo businesses should be able to maintain simpler books that let them reliably feed their families year-to-year; an sudden upfront tax burden for a solo dev impedes that.
    • pclmulqdq 3y ago
      As I understand it, under the current rules, you can classify maintenance work as an opex. You just can't argue that development of new software is an opex.
      • DougWebb 3y ago
        What kind of software maintenance work does not create new software? Are you only deleting lines of code from the existing software?
      • spullara 3y ago
• merritt911 3y ago
  If I'm not mistaken, the amortization period is 5 years for domestic 'research expenses', but 15 years for non-domestic (foreign). 15 years is a long time...
• hn_throwaway_99 3y ago
  I really, really believe the guidelines for software capitalization are totally outdated (even before this change) and absolutely need to be updated to reflect how software companies actually work today. The amortization guidelines basically come from old-school packaged software and waterfall development cycles, where software was first built, and then it was a "finished product", and then it was shipped to end users. In a SaaS world, where CI/CD is commonplace and things like A/B testing are everywhere, and it's basically impossible to distinguish "new development" from "maintenance", the whole capex vs. opex for modern software companies is a total joke that can easily be gamed in either direction. For example, I previously worked for an e-commerce company that wanted us to categorize as much dev time as possible as CapEx, because it made our bottom line look better. The whole thing was a total sham, and it's not that the company was at fault, but it's that the accounting guidelines think, wrongly, that software development for most web companies can be neatly divided into "research and development" vs. "maint", and that is just absolutely not possible given how devs at most companies work. Unless it's basically "shrink-wrapped" software, which largely doesn't exist anymore, software that is delivered by a company that provides that product online and continuously improves/monitors it (i.e. basically all SaaS companies), all software dev should be treated as OpEx, period. Anything else is just a silly game that doesn't reflect reality. The only possibility I can see arguing for CapEx treatment is when there is dev before any product actually has been made available yet.
  • fdasava 3y ago
    > Unless it's basically "shrink-wrapped" software, which largely doesn't exist anymore, software that is delivered by a company that provides that product online and continuously improves/monitors it (i.e. basically all SaaS companies), all software dev should be treated as OpEx, period. You sure about that? If code written 3 years ago is still in production, that's not an operating expense, that's a capital expense. Kind of by definition. In a mature product, you'd expect expenses to shift to opex. But adding features and improvements are all classic capex. Just like any other industry.
  • rrrix1 3y ago
    > "shrink-wrapped" software, which largely doesn't exist anymore Except every commercial operating system, any enterprise network or security appliance (physical or virtual), software for hardware (firmware, drivers), or pretty much any other software that isn't implicitly on or connected to the internet. A few companies who might find this tax paradigm beneficial come to mind: Microsoft, Apple, IBM, Cisco, Intel, NVIDIA... Just to name a few. I generally agree with the overall sentiment; except the ways in which software is being built and delivered is changing by expansion, but not necessarily changing by replacement.
• koolba 3y ago
  Am I to understand from the example that in the simplistic case of a single employee C corp in the field of software, one cannot deduct the full salary of the one and only employee if any of the employee's time is spent working on future initiatives (i.e. "research")? If so, does this still apply to companies operating on a cash basis?
  • 1auralynn 3y ago
    Yes and yes
• qaq 3y ago
  Large companies will work around this by putting some entity in a jurisdiction with different rules and that entity licensing IP to US entity. Small companies will get screwed.
  • fritzo 3y ago
    The SEC and IRS have penalized this sort of IP gerrymandering, e.g. Microsoft's $28Billion fine https://techcrunch.com/2023/10/12/microsoft-faces-28-9-billion-tax-bill-irs https://techcrunch.com/2023/10/12/microsoft-faces-28-9-billi...
    • AnthonyMouse 3y ago
      The problem with these rules is that they're unwilling to actually provide any principles because of what it would do. If hiring engineers in California required you to declare your global profits in California, companies would prefer to hire engineers in another state or another country that doesn't do that, so tax authorities aren't willing to say that's required because of what it would do to the local labor market. But if they don't say that then companies declare their profits in Puerto Rico or Ireland. You can't have it both ways. Governments have to choose what they actually want to tax, and then take the consequences of companies avoiding doing that in their jurisdiction.
    • qaq 3y ago
      This is MS shifting profits to avoid paying taxes though.
• ianbicking 3y ago
  I feel like I'm kind of bullshitting here because I haven't looked into this much or thought about it before reading this post, but I left this comment: Under the logic of this rule, a firm making a software product could invest money in software development, produce the necessary software, then get income from the software without further investment in software development. In practice this is never the case; revenue gained from software needs to be met with further software development to maintain, update, secure, etc. the software. Firms that invest in capital often have large startup costs that go down as the firm becomes fully capitalized. Software development costs seldom go down, but instead expand with the firm's success. This is counter-evidence to the idea software is capital. The software produced is also of unclear value and is not fungible. If a firm buys manufacturing equipment and the enterprise is unsuccessful they can sell the equipment. In the case of an unsuccessful enterprise the software almost always is of zero resulting value. Given these rules if a firm invests money in software development, makes some revenue, but ultimately doesn't create a sustainable enterprise, 100% (or more!) of the profits could go to taxes with no ability to recoup the overtaxing when the firm is dissolved. Additionally, a firm buying durable goods will be able to buy those goods on credit, using the durable good as collateral. The tax laws encourage this process and amortization makes sense. Software cannot be produced on credit, and in practice can never be used as collateral on a loan.
  • fdasava 3y ago
    It's not really that black and white. The production of new software would be capitalized, just like the production of basically any other product. Resources/developer time spent on maintence would be deducted immediately, however. And... if you have to write down an intangible asset you can... and that will reduce taxes accordingly. You can also get loans for intangible assets, use them as collateral, etc. I don't understand what you're saying about not producing software on credit-- of course you can produce it on credit like anything else. You can hire out a firm. Even if you hire a w2 dev you typically have 2 weeks to pay them for work done.
    • ianbicking 3y ago
      Yes, I should have been clearer that it's not that you can't make it on credit, but you can't use it as collateral. Firms usually buy capital, they don't build it with their own hands; this both means different financial instruments are available to them, and they can liquidate that capital. (But as I said, my comment is kind of made up)
• Racing0461 3y ago
  One more of the "regulations" that even though they hurt big companies, they can shoulder the cost but small companies/startups can't do the big companies will support it in order to reduce competition.
• PumpkinSpice 3y ago
  How does this interact with the R&D tax credit? Historically, companies actively sought to classify a portion of software engineering expenses as research, because you received pretty generous tax rebates for that in addition to this naturally offsetting your income: https://www.adp.com/resources/articles-and-insights/articles/r/r-and-d-tax-credit-what-it-is-and-how-to-claim-it.aspx https://www.adp.com/resources/articles-and-insights/articles... This looks like an attempt to reduce that second part without touching the first, right? So effectively an administrative action to reduce the R&D tax credit passed by the Congress a while back?
  • dboreham 3y ago
    This seems like the most reasonable interpretation of the rule: if you're going to use development work done to claim the tax credit, then (and only then) you have to amortize said work for taxable income purposes.
• gavinhoward 3y ago
  This rule is the reason I did not file to make my LLC an S Corp. (If that's the right term.) A regular single-member LLC, such as mine, is treated as one entity with its owner for tax purposes. The LLC's income is my income, and I just file a personal return for it. This can be bad because it puts you in a higher tax bracket. An S Corp is a way around that. You have the LLC "pay" you a "wage," and you pay personal taxes on that, while the LLC pays whatever corporations have to pay. But if your LLC does software, like mine, congratulations! You can only deduct 20% of that "wage." I've been developing my software for years, and I am not done yet. I don't have revenue. So if I went the S Corp route, I'd actually have to pay taxes on 0 revenue. But as a regular LLC, my own work (as the owner) does not count as anything taxable, so I'm safe. If you are going into freelance, perhaps as a consultant, keep this in mind. And do submit a comment. Also, beware of accountants that will try to get you to do something that is not in your best interests. I had one or two try to encourage me to file as an S Corp, even though they admitted this could be a problem.
  • chatmasta 3y ago
    > So if I went the S Corp route, I'd actually have to pay taxes on 0 revenue You'd only pay taxes if your revenue were more than your deductible payroll expenses (which as you say, you estimate to be 20% of your salary, which in an s-corp must be a "reasonable salary" for work performed). There's no case where this law causes you pay tax on zero revenue. The problems require some revenue before they affect you, which might actually be another argument against it - you're disincentivized to create revenue from your early product if it's not going to be enough to cover your tax obligations.
    • gavinhoward 3y ago
      Well, I would hope you are right, but that's not what the accountants were saying.
      • dboreham 3y ago
        This is what the parent means by "batshit crazy".
• fdasava 3y ago
  > This has a hugely negative impact for early-stage startups, contract research firms (i.e. SBIR companies), and independent software developers. Yeah, but that doesn't make it unfair, no? The whole "develop it today, pay taxes on it later" effect SaaS used to have was just a loophole software enjoyed for a long time. Developing anything is investment, and tax code generally requires that to be amortized so you can't deduct it all year 1. Congress just closed the loophole for software.
• Apreche 3y ago
  The thing that I hate most about this rule, as a developer, is that employers keep trying to get me to track all my hours of work. They do this to figure out what portion of my wages they can claim as capitalized expenses. That would make sense if I was a consultant, or working for a consultancy, and billing someone else for those hours. As a full time salaried employee, time tracking is just a pain in my ass. To make things worse, I believe that few, if any, companies doing this time tracking are doing it with any amount of rigor. If an auditor really wanted to check, they would find that the claimed capitalized expenses are overinflated, and are technically tax fraud. Just remove the rule altogether. A company paying a wage to a software engineer shouldn't be taxed any differently than any other kind of employee.
  • fdasava 3y ago
    > Just remove the rule altogether. A company paying a wage to a software engineer shouldn't be taxed any differently than any other kind of employee. In most other industries, product development is capitalized and amortized over the life of the product for tax purposes. It requires lots of estimation and log-keeping (X% spent on develpoment, 100-X% spent on maintenance). Which is exactly what your employer is doing... taxing you just like every other kind of employee. The change just removed the specific loophole for software.
    • spac 3y ago
      Except that for software this is so much more complex than for any other type of products.
• PaulDavisThe1st 3y ago
  To try to clarify for anyone reading about this for the first time ... this all hinges on whether language in the tax code is interpreted one way or another. Way #1: companies often try to claim many deductions on R&D expenditures, and the changed language makes it clear that all software development expenses can be claimed as R&D expenditure (which was not necessarily clear before). Way #2: all software development expenses MUST be treated as R&D expenditures which requires claiming them as an amortized deduction (over 5 or 15 years depending on where they happen). Neither the IRS nor Congress has clarified the intent of the change, and there are solid arguments for both interpretations. Way #2 is supported by the use of "shall" in the language used. Way #1 is supported by the fact that Way #2 is batshit crazy. It seems that a lot of people are convinced that Way #2 is the intended one, despite its catastrophic implications for many software-based companies.
  • dboreham 3y ago
    Thanks for posting this clear explanation. Every time this comes up it's frustrating to see commenters assume that it's certainly intended to be way #2.
  • dataflow 3y ago
    If it's so crazy that people think "shall" couldn't have possibly been meant to be taken literally, (why) is there no court case about it? Is that not possible at this stage in the process?
    • martinflack 3y ago
      As a law prof once told me, "shall" can end up being ambiguous in court, despite the common understanding. I'm sure this isn't the best tutorial on the topic but it gives you a taste: https://www.barandbench.com/columns/shall-shocked-the-use-of-shall-in-legal-documents https://www.barandbench.com/columns/shall-shocked-the-use-of...
      • dataflow 3y ago
        > As a law prof once told me, "shall" can end up being ambiguous in court, despite the common understanding. Perhaps it can be can be made ambiguous in some context if you try hard enough, but that doesn't mean it commonly is so, or that it is here. > I'm sure this isn't the best tutorial on the topic but it gives you a taste: https://www.barandbench.com/columns/shall-shocked-the-use-of https://www.barandbench.com/columns/shall-shocked-the-use-of... Thanks, but the only thing that link gave me a taste for is terrible strawman arguments. (Or a severe lack of understanding of basic English.) If you have "shall be" in a sentence, then that phrase is the verb of interest whose ambiguity (or lack thereof) you must examine, not the "shall" on its own. Claiming "shall" is ambiguous because it changes meaning when you put "be" after it makes no sense. It comes across as the kind of argument a first-grader would make. They write: If the substitution rule is applied in the sentence: “The employee shall be reimbursed all expenses”, you would get: “The employee has a duty to be reimbursed all expenses”. This created ambiguity for the simple reason that the intent appeared to state an entitlement of the employee and not to impose a duty on the employee. Do they lack common sense when reading this, or do they struggle with English? It's like claiming "I have a carrot" is somehow ambiguous because "I have been a carrot" means something entirely different. Does that sentence need disambiguation with "I possess a carrot" or "I have a carrot, but have not existed, as a carrot"? Are these serious arguments?
• codazoda 3y ago
  Does this rule encourage off-shoring? Meaning that contract developers just invoice you and you write that off as any other expense, or does it apply equally there?
  • creer 3y ago
    "Just as any other expense" meaning that it's a software development expense. I don't think it matters much in US tax whether you do it in house or not. It might matter if you buy finished software modules and integrate and resell them.
  • PaulDavisThe1st 3y ago
    If the interpretation that all software development expenses MUST be treated as R&D expenditure and claimed as a deduction is correct (which it might be, but it might not be), then it's worse for off-shoring because the amortization period is 15 years. That is, you paid off-shore contract developers $100k, you can only deduct $6667 of that in any given year, over the next 15 years.
• ImPostingOnHN 3y ago
  This is also a problem facing recipients of government grants. The government will give you the 100k you ask for, let you spend it on what you planned to, then tax 80k in revenue (100k with 1/5 years amortized), asking you to give some of it right back to them (like the post says, you are forced to amortize your expenses over 5 years, even if they were all in year 1). Why? Now academic research needs to consult on tax implications and have some set aside.
• mijustin 3y ago
  If you’re the owner of a small software company, there’s a group of us that have been petitioning congress. You can sign the letter and send it to your representative here: https://ssballiance.org/ https://ssballiance.org/
• iusuallylurk 3y ago
  I believe there are only 43 because they require "review" before being posted officially. It is likely that they do not approve the majority of comments, I submitted one but it has not yet been approved.
• devoutsalsa 3y ago
  Can I get a tax refund on $0 revenue for deleting code?
• burroisolator 3y ago
  Does it help to submit duplicative arguments? I see some pretty strong arguments in the comments already. I wish there was a way to just upvote an existing comment.
• riku_iki 3y ago
  > Revenue: $100k > Expenses: $100k (developer salaries) > Net operating income: $0 > Taxable income: $100k - 0.1x100k = $90k (first year deduction is 10% of SREs) And idea is that your deductions you lost here will be applied in next 5 years.
• mjwhansen 3y ago
  To add to this: please contact your Representative and Senators and tell them to tell Congressional leadership to fix R&D spending by the end of the year. Congressional staff are required to keep tabs on everyone who calls in about an issue, so your time is well-spent. The November 17 continuing resolution is our best chance to get this fixed, but only if enough members of Congress hear from their constituents about it!
• spac 3y ago
  I have submitted a comment to the Notice, as well emailed my Represenatives and state Governor. I urge every one to do the same, this is absolutely bonkers and I agree that it will severely affect the startup ecosystem.
• dv_dt 3y ago
  Do you actually need software salaries to be treated as R&D vs a more regular salary expense? (I'm not an accountant so I'm not even sure I'm using proper terminology) I understand there maybe be other non-salary sw-dev expenses too... Does an R&D classification give different tax accounting options at least for the salary part?
  • sb8244 3y ago
    That's my big question here. If I don't claim an r&d tax credit, does the salary still get treated as r&d?
• avsteele 3y ago
  This is about way more than software. Bear in mind that the way it is written all research and experimentation costs would be amortized. So if you have a chemist, biologist, physicist or even an engineer it plausibly is the case that if you are paying them to develop a new product that carries technical risk then their *salary* needs to be capitalized! Good luck coming up with the cash to pay a tax bill on 90% of their annual salary. You can't even pull forward the depreciation if you abandon the research! Sure, it mostly stabilizes after about 6 years if your R&E budget is flat, but even in this case there is a huge cost in that you only get to deduct their salary in the far future. It is huge disincentive to developing anything new. This is a total nightmare and cost many business like mine an absurd amount of money this year. Everyone just filed for extension in April assuming this insanity would be reversed before the late filing deadline... NOPE! (NB: it is NOT necessarily tied to R&D, or the R&D tax credit. The calculation of this is subject to different rules.) I don't even know how large companies found the cash to pay this bill. How can a biotech or software company whose annual expenses I'd guess are largely salary have had the money to pay taxes on 90% of their salary budget?
  • onlyrealcuzzo 3y ago
    Do any other countries do this? And if not, why would anyone push for this - unless your intention is to make sure no R&D happens inside the US. Who's pushing for this?
    • avsteele 3y ago
      US treatment under the old rule was constant from the 1950's. I don't know about other countries. I haven't found anything credible on 'why' this was added, but...I'd hazard a cynical guess that it was put in as a way to reduce the apparent cost of the TCJA. You look for ways of raising revenue in your bill so you can claim it costs less. You do this do this even if you expect that (unpopular) change will be undone later. A second possibility is that it was added to reduce the benefits of the R&D tax credit, which in fairness a lot of companies probably abuse.
      • 3y ago
• walterbell 3y ago
  2023-11-02 letter signed by trade associations and companies (incl. AMD, Cisco, Dropbox, HP, Intel, Nvidia, Qualcomm, Y Combinator), covers three points including R&D expenses, https://documents.nam.org/TAX/2023%20Tax%20Priorities%20Sign-On%20Letter%20FINAL.pdf https://documents.nam.org/TAX/2023%20Tax%20Priorities%20Sign... 1. For nearly 70 years, the tax code recognized the importance of R&D by allowing businesses to fully deduct their R&D expenses in the same year they were incurred. Unfortunately, starting in 2022, the tax code has required businesses to amortize (or deduct over a period of years) their R&D expenses, making R&D more costly to conduct in the U.S. ... tens of thousands of jobs are at risk if the harmful R&D amortization requirement remains in place. As a result of this change, the U.S. is now one of two developed countries requiring the amortization of R&D expenses. 2. Prior to Jan. 1, 2022, businesses' interest expense deductions were limited by section 163(j) to 30% of their earnings before interest, tax, depreciation and amortization (EBITDA). Interest deductions are now limited to 30% of earnings before interest and tax (EBIT). 3. Over the past several decades, the tax code has provided businesses with varying degrees of first-year expensing (i.e., accelerated depreciation). A 100% deduction for the purchase of equipment and machinery in the tax year purchased was in place from 2017 through 2022 ... full expensing began to phase out at the beginning of 2023 and will be eliminated completely by 2027.
• Xorakios 3y ago
  Oh good golly, don't forget the $19,000ish for federal self employment taxes
• zharknado 3y ago
  Call me crazy, but… 4.03(2)(d) > Cost to input content into a website. Listed as an excluded cost (not SRE). So… if hypothetically my IDE is in a browser, and I spend my whole day coding there, I’m just inputting content into a website, aren’t I? How about an Electron app?
  • mariodiana 3y ago
    According to the government, if it involves "tubes," it's the Internet.
• lgleason 3y ago
  For people doing contract software development in a work for hire type of fashion, at this point it looks like this will not directly affect you or a business that does that. But your your client is going to have a bigger tax bill which may mean less money to pay you for development.
• bunnie 3y ago
  Seems like somewhere in all of this there is an assumption that one writes software to profit from its sales. However, in some cases people contribute software to open source projects that are not only Libre but also "Free as in Beer". Sometimes they get donations or grants to work on such projects. Heck, they might even have a contract from a company that uses this free-as-in-beer software, but, once the contributions are made, the code is free for everyone to take. In this model, there is explicitly no forward looking profit to be had. All parties contractually agree that the value of the work, after it is done, is $0. In this case I don't see how it would even make sense then to amortize donations/grants/contract money on a 5-year schedule when the asset value of the deliverable is $0? I would think in this case that the person doing the development is providing a bona-fide "service industry" activity, and not doing an R&D activity. Thus the wages of that person should be as deductible as any other service-industry worker: There is as much expectation for future profits from writing this code as the person painting your house has future expectations of profits from the higher resale value of your place because of the improved paint job. So at least for individuals being paid to work on free-to-download code, the entity paying you to do the coding may have to write off your contract as an R&D expense, but the individual contractor should still be able to depreciate that payment as a wage within the tax year because they are providing "coding services", and not doing R&D. This logic has precedent if you consider how capital assets work. Let's say a shop purchases a donut machine. The purchaser of the donut machine has to depreciate that purchase over several years. However, the individuals who were paid to assemble the donut machine are paid wages as factory labor, and their expenses are deducted by the donut machine marker that tax year. In this case the donut shop is whoever is paying you to write the code, and the coding contractor is the donut machine assembly technician. So long as the donut assembly technician doesn't have a stake in the donut shop's future-looking profits, I think it's quite clear who is providing a service and who owns a capital asset. I think this logic would also mean that individual contractors who work on proprietary, for-profit code bases but assign all value of their work product immediately to the contracting body would also be a service provider and thus can depreciate their own wages within the tax year. But, the example is not as clear-cut as a work product that explicitly has a $0 expected market value.
  • bunnie 3y ago
• textsummarizer 3y ago
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• email_generator 3y ago
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