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I should add that's there is also vaguely middle-ground interpretation, which goes something like: Way #1.5: if a company chooses to take R&D expenditures of a
by PaulDavisThe1st 3y ago
I should add that's there is also vaguely middle-ground interpretation, which goes something like:
Way #1.5: if a company chooses to take R&D expenditures of any type as a deduction (which it is not required to do) then it MUST include software development expenses (which in turns means they will be amortized).
- yieldcrv 3y agounless they aren't deducting software development at all there is no obligation to take a deduction. if you find yourself in a circumstance where its more favorable to not take a deduction then you don't have to report that transaction
- PaulDavisThe1st 3y agothis is the whole crux of the matter. interpretation #2 says that the law now says that you MUST ("shall") consider all software development expense as R&D expenditures that are amortized over 5/15 years. i personally believe that the intended/appropriate interpretation is #1 - you MAY consider software development expense as R&D and include in an R&D deduction if you choose to take one. but it is far from clear what was intended and/or how the IRS interprets it.
- yieldcrv 3y agothat’s interesting well the IRS is going to get gutted anyway, I don’t see this particular issue being looked at with any scrutiny that requires litigation
- PaulDavisThe1st 3y agochance of IRS being gutted: not zero but close to it. that bill from the house is incredibly unlikely to even get a hearing in the senate, and even if it did and it passed, somehow, biden will veto it (and that veto will not be overridden.
- yieldcrv 3y agoif not now, itll happen in the NDAA, or a budget reconciliation bill, or similar government shutdown averting action, or change of president IRS expansion is on life support and is the first target with any little bit of leverage against the President
- PaulDavisThe1st 3y agoThe problem is that the CBO has been entirely clear that cutting IRS funding increases the deficit, and there's plenty of senators and a white house staff eager to point this out.
- drdec 3y ago> unless they aren't deducting software development at all What business does not deduct salaries from their income when reporting taxes? I'm open to a counter-example where this makes sense.
- yieldcrv 3y agoif you have enough other expenses that already nullified that year’s tax, and it is complex to file a certain remaining kind of expense then you don't need to do it
- Aeolun 3y agoWouldn’t that basically always mean you’re in the red already though?
- yieldcrv 3y agonot every tax deduction uses cash so no. between using borrowed funds, other tax credits, in-kind donations, carry forwards or carry backs from other tax years, you should be able to get it to zero or near zero without spending all cash/profits on hand and then the corporation can have one financial circumstance that has nothing to do with your financial circumstance improved by payment from the corporation theyre conduits, it depends on how much authority you have over the corporation
- s1artibartfast 3y agoThere are special deductions you can elect to take for R&D expenses. If you choose to deduct R&D expenses, you must include software development there. If you do not chose to deduct R&D expenses, you can deduct software salaries as normal. I personally think this makes a lot of sense.
- PaulDavisThe1st 3y agoIt may make sense, but your interpretation (one I happen to agree with) is what I called #1 above. It is still unclear whether the IRS regards the rules as requiring interpretation #2 (in which paying someone to do software development MUST be treated as an amortized, capitalized R&D expense) or not.