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Deducting R&D in Software is very funny. I've mostly seen it been used fraudulently, but luckily I haven't seen much of it at all. Spend a month managing kuber

• vaxman 2y ago
  Don’t take it personally, but if you aren’t researching and developing new and improved methods of performing Information Technology to better equip your company to compete in its marketplaces, then you had better be purely in Operations.
  • vasco 2y ago
    I see you're one of the people I worked with that liked classifying things like "our A/B test says the red button converts better" or "we should let the users message each other" as Research. CRUD app #548 isn't research in my book, unless you're doing something you can actually publish papers about with some innovation. Even in "basic UX" it is possible to do research, but most people are making a button, not researching.
  • grandempire 2y ago
    every startup I worked at used the research thing for things that definitely were not studying how to improve the computing field.
    • voxic11 2y ago
      That isn't how the IRS defines it though. Essentially anytime software is being "developed" they will let you classify it as "R&D" (well you can claim the 174 R&D expense deduction but not the R&D Tax Credit under Section 41 which requires activities closer to what you describe). > Section 5 of Rev. Proc. 2000-50 provides, “The costs of developing computer software (whether or not the particular software is patented or copyrighted) in many respects so closely resemble the kind of research and experimental expenditures that fall within the purview of section 174 as to warrant similar accounting treatment.” As a result, “the Service will not disturb a taxpayer’s treatment of costs paid or incurred in developing software for any particular project, either for the taxpayer’s own use or to be held by the taxpayer for sale or lease to others,” where the taxpayer either treated the costs as currently deductible expenses under former Sec. 174(a) or capitalized and amortized them under former Sec. 174(b) (id.).
      • therealpygon 2y ago
        Almost makes you wonder what that D stands for in “R&D”.
        • TeMPOraL 2y ago
          It stands for "marketing", obviously. After all, that's what you do to "develop" the output of your "research" into a product.
      • grandempire 2y ago
        I know. Im not saying they were committing fraud. Im saying this is of questionable social value to subsidize.
    • nivertech 2y ago
      It’s not about “improving the computing field”, but creating new IP (Intellectual Property). Old industries - get paid for doing the actual work Enterprise SW - get paid for automating things Software companies - get paid for writing COTS (Commodity of the Shelves) software Sharing economy startups - get paid percentage of every transaction in a specific marketplace
• coolestguy 2y ago
  How does deducting R&D in software equal magic money? Isn't it just making the deduction timeframe the same timeframe as the actual expense/money paid? It's weirder that you spend money on R&D today & then get a 20% for 5 years in a row, no? You've spend money, but also can't deduct it from your profit so you're both spending money and paying taxes on that money as if you had it.
• nivertech 2y ago
  With k8s u’re 80% researching innovations in container orchestration, & only 20% doing actual work, so it’s clearly an R&D expense ;)
• addicted 2y ago
  It’s funny that this comment keeps putting “researching” in quotes, but you guys do realize that R&D has the letter D in it as well right? For Development? Yeah, committing to a library isn’t research, but it is very clearly development. You may not want this kind of development to receive tax breaks, which is a reasonable position to have, but this rhetorical trick of pretending R&D is only about research to pretend actions that are very clearly development are somehow illegitimate R&D is highly misleading to say it nicely.
  • vasco 2y ago
    Well R&D is just the English term I used for it - but you have a point. How the tax law evaluates this and what words are used depends on jurisdiction, whereas I was speaking imprecisely in an internet forum. In my country for example the term is similar but you usually have to submit projects in advance for approval and have reviews of your research output.
  • ethbr1 2y ago
    The D in R&D means developing research into a product. That's pretty far off keep-the-lights-on or CRUD coding.
• imtringued 2y ago
  You got it exactly backwards. R&D is not tax deductible, so the cheat would be to say the custom operator (=R&D) is maintenance and therefore OpEX and a fully deductible expense. The entire problem is that software companies hire workers and need to deduct salaries in the month they are paid. The 5 year R&D rules basically say that your salary in one month must be tax deducted over five years. If your business is breaking even and making no net profit, you would now have to pay taxes, which turn your "break even" business into a loss making business. There is no situation where the old rules let you get away with paying less taxes than you should. The rules simply affect the timing of the tax deductions. The new tax rules basically assume every business has infinite access to 0% interest loans to bridge over temporary tax induced insolvency.
• snapplebobapple 2y ago
  Is this true though? Salaries are generally fully deductible from income at time of payment. This article ia about amortizing it, which delays deductibility. Would be more magic loss of money, no? personally, i think amortization is generally stupid and all expenses should come off income at time of accrual with the exception of a matching amount to net debt change over the year, but i am a dreamer.