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Gergely Orosz's theory[1]: > An IRS tax code change in Section 174. This change eliminates the ability for businesses to deduct R&D as an expense. > Hear of l

Gergely Orosz's theory[1]: > An IRS tax code change in Section 174. This change eliminates the ability for businesses to deduct R&D as an expense. > Hear of lots of layoffs directly because of this, as a start. [1] https://twitter.com/GergelyOrosz/status/1735030983173230944?lang=en https://twitter.com/GergelyOrosz/status/1735030983173230944?...

smiths1999 3y ago
I don't follow. Aren't employee salaries a deductible expense? The above makes me think more along the lines of no longer being able to deduct GPU costs incurred from deep learning research.
- fritzo 3y ago
  IIUC, whereas previously companies could deduct salaries in year Y from revenue in that same year Y, now section 174 allows deduction of only 1/5 of those salaries in each of the 5 years [Y,Y+1,Y+2,Y+3,Y+4].
  - adamzochowski 3y ago
    This is for specific R&D costs, like doing something patentable. Most developers are not doing R&D. Most developers are fixing bugs, helping sales, keeping systems online, keeping up to date on patches, performing security scans, complying to some internal policies.
    - intunderflow 3y ago
      No it's not. https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174 > (3)Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
  - idkyall 3y ago
    After 5 years of this law being in effect, will the numbers balance back out to pre section 174? That is, does that deduction from year Y carry over into year Y+1, Y+2, etc.? I mean, this probably still matters a lot for startups given their shorter lifetimes, but it seems any large company(I'm thinking of, e.g. Apple, who has plenty of cash on hand) that's been around for a while could just wait it out? I am not familiar with corporate tax law and how deals are structured, but could you also defer revenue in the same way to offset(e.g. customers with a 5 year contract paying progressively more but keeping the same total $ amount to sync with your deductions)?
analogwzrd 3y ago
What does the average company spend on R&D percentage-wise? My old company was a contract engineering company, so they always tried to staff everyone possible on projects being paid for by customers. R&D was used to develop internal tech and build expertise on new technologies so it was only maybe 10-25% of most engineer's timesheets. Do other tech companies spend that much more on R&D?
- ryanSrich 3y ago
  From what I recall, the tax credit is used for products that aren't yet available to the market. So let's say a company needs 5 years to build some new hardware. Those 5 years of labor and expenses are all R&D. I think that's why this is such a big deal. I could be wrong though.
- sciencesama 3y ago
  in general they can balloon the r&d and can have a huge tax write off !!
- mike_hearn 3y ago
  Tech companies routinely report nearly their entire engineering division as R&D for tax purposes.

smiths1999 3y ago

I don't follow. Aren't employee salaries a deductible expense? The above makes me think more along the lines of no longer being able to deduct GPU costs incurred from deep learning research.

fritzo 3y ago
IIUC, whereas previously companies could deduct salaries in year Y from revenue in that same year Y, now section 174 allows deduction of only 1/5 of those salaries in each of the 5 years [Y,Y+1,Y+2,Y+3,Y+4].
- adamzochowski 3y ago
  This is for specific R&D costs, like doing something patentable. Most developers are not doing R&D. Most developers are fixing bugs, helping sales, keeping systems online, keeping up to date on patches, performing security scans, complying to some internal policies.
  - intunderflow 3y ago
    No it's not. https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174 > (3)Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
- idkyall 3y ago
  After 5 years of this law being in effect, will the numbers balance back out to pre section 174? That is, does that deduction from year Y carry over into year Y+1, Y+2, etc.? I mean, this probably still matters a lot for startups given their shorter lifetimes, but it seems any large company(I'm thinking of, e.g. Apple, who has plenty of cash on hand) that's been around for a while could just wait it out? I am not familiar with corporate tax law and how deals are structured, but could you also defer revenue in the same way to offset(e.g. customers with a 5 year contract paying progressively more but keeping the same total $ amount to sync with your deductions)?

analogwzrd 3y ago

What does the average company spend on R&D percentage-wise? My old company was a contract engineering company, so they always tried to staff everyone possible on projects being paid for by customers. R&D was used to develop internal tech and build expertise on new technologies so it was only maybe 10-25% of most engineer's timesheets. Do other tech companies spend that much more on R&D?

ryanSrich 3y ago
From what I recall, the tax credit is used for products that aren't yet available to the market. So let's say a company needs 5 years to build some new hardware. Those 5 years of labor and expenses are all R&D. I think that's why this is such a big deal. I could be wrong though.
sciencesama 3y ago
in general they can balloon the r&d and can have a huge tax write off !!
mike_hearn 3y ago
Tech companies routinely report nearly their entire engineering division as R&D for tax purposes.