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> contractors will be hired typically to contribute to capital expenditure You know, operational expenses are the ones that get an immediate tax break, and cap

> contractors will be hired typically to contribute to capital expenditure You know, operational expenses are the ones that get an immediate tax break, and capital expenditure the ones with a depreciation period. Changing the expenses that way can only increase the company's tax payments. The only reason one could possibly want to make that change is if they want to fraudulently show the money paid for the contractors as earnings.

thesuitonym 2y ago
Most of the people in charge of making these kinds of decisions are not that smart.
pclmulqdq 2y ago
> to fraudulently show the money paid for the contractors as earnings Bingo. That's the main reason to shift opex to capex.
- cutemonster 2y ago
  If you have time, how can capex, an expense, appear as earnings? (I'm pretty clueless about these things) Aha, it's that: "Opex is subtracted from earnings before public reporting and before taxes" (I see in other comments here), but capex is not subtracted, so then it looks as if the company is doing better, on paper, although it's not. And this works only for a while, maybe some years? Which might be long enough for the current management, if they leave before things get too bad?
  - marcosdumay 2y ago
    "Capex expenses" are investments. And the investment is one of the two things a company may do with profits, the other is paying dividends. Just by classifying something as capex, it's automatically classified as profit already.
    - cutemonster 2y ago
      Thanks!
nine_k 2y ago
This is exactly what has changed [1]: R&D costs had been an immediate tax break, but since 2022 became an expenditure requiring a 5-year amortization period. That change had been planned to be canceled before coming into force, but it was not canceled on time. Hence the wave of layoffs in 2022, as companies were urgently trying to improve their balance sheets, as investors and the Wall Street requested, AFAICT. [1]: https://www.corumgroup.com/insights/major-tax-changes-us-software-companies https://www.corumgroup.com/insights/major-tax-changes-us-sof...

thesuitonym 2y ago

Most of the people in charge of making these kinds of decisions are not that smart.

pclmulqdq 2y ago

> to fraudulently show the money paid for the contractors as earnings Bingo. That's the main reason to shift opex to capex.

cutemonster 2y ago
If you have time, how can capex, an expense, appear as earnings? (I'm pretty clueless about these things) Aha, it's that: "Opex is subtracted from earnings before public reporting and before taxes" (I see in other comments here), but capex is not subtracted, so then it looks as if the company is doing better, on paper, although it's not. And this works only for a while, maybe some years? Which might be long enough for the current management, if they leave before things get too bad?
- marcosdumay 2y ago
  "Capex expenses" are investments. And the investment is one of the two things a company may do with profits, the other is paying dividends. Just by classifying something as capex, it's automatically classified as profit already.
  - cutemonster 2y ago
    Thanks!

nine_k 2y ago

This is exactly what has changed [1]: R&D costs had been an immediate tax break, but since 2022 became an expenditure requiring a 5-year amortization period. That change had been planned to be canceled before coming into force, but it was not canceled on time. Hence the wave of layoffs in 2022, as companies were urgently trying to improve their balance sheets, as investors and the Wall Street requested, AFAICT. [1]: https://www.corumgroup.com/insights/major-tax-changes-us-software-companies https://www.corumgroup.com/insights/major-tax-changes-us-sof...