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Could you explain this in more detail? What is a capitalized cost? What is the logic in taxing this kind of cost more than others, or spreading the tax break o
by ilyagr 3y ago
Could you explain this in more detail?
What is a capitalized cost? What is the logic in taxing this kind of cost more than others, or spreading the tax break over more years?
I have some guesses, but I don't understand the basic philosophy of what should be a tax on the business, what should be a tax on the business owners (when their property becomes more valuable, e.g. capital gains tax), and what should be a tax on the employees' salaries (I guess this part is analogous to a sales tax on products the business buys).
- deleted 3y ago[deleted]
- jncfhnb 3y agoThe basic idea behind accounting is recognizing when value comes in and out. E.g. if you get $100M up front to do work over 10 years, you don’t get $100M in revenue and nothing over the next 9 years. You spread the 100 over 10 years. Even if the cash comes in immediately. Capitalizing a cost means you’re saying this is a cost that is needed to build an asset that will provide value over time. If you build a factory or an app that is expected to help generate revenue over the next ten years then its dev costs should be allocated over the next ten years. Companies want to say all of the cost belongs in year 1 so that they can avoid paying any taxes in year 1. It is not taxed “more”. Capital gains tax is a separate thing not relevant to what’s being discussed. The salaries are not being taxed either (payroll tax is a separate idea here too). The question is which years should the salaries applied against revenue.