28 ms·

The time bomb in the tax code that's fueling mass tech layoffs

• timhigins 1y ago
  Note that Trump's Big Beautiful Bill as it passed the House of Reps would bring back 100% expensing of R&D expenses including software development costs/salaries.
  • margalabargala 1y ago
    "I'll give you a candy bar if you let me stab you multiple times"
  • kelnos 1y ago
    If the article is to be believed, though, the damage is already done. Companies have already laid off large portions of their R&D staff, and have canceled lots of forward-looking technical work. Re-hiring those people and restarting those projects can take years, and that's if companies feel confident enough that the exemption will stick around, and not get removed again in a few years.
    • almosthere 1y ago
      It's always young companies that hire everyone, so it still helps.
    • EricDeb 1y ago
      Still, I'll take it
• sitkack 1y ago
  Is there a flaw in saying, "salaries should always be considered a business expense and cannot be amortized over many years." ?
  • warkdarrior 1y ago
    That's not what the law says. You'll have to take it up with Congress.
    • fluidcruft 1y ago
      I think they're asking whether there would be a flaw with making that change.
  • eximius 1y ago
    Considering they are probably the largest component of R&D expenses... yes, _if_ you think R&D should be tax-subsidized in some way.
    • sitkack 1y ago
      I don't understand how that is a subsidy, are the people paying the employer? The employer makes less profit due to salaries, but they won't "lose less" or make more money due to salaries. Under that argument, the government would have a direct incentive to dictate how businesses do business to maximize taxable revenue.
      • eximius 1y ago
        Tax subsidies are when the government taxes you less, thereby reducing your tax burden. You don't receive funds, you just owe less.
        • deleted 1y ago
          [deleted]
  • holtkam2 1y ago
    I would say, yes there is a flaw there, because salaries are often a huge chunk of R&D expenses, and for the sake of long term growth, we want to disproportionately incentivize R&D spending
• dtagames 1y ago
  This doesn't explain the mass tech layoffs. According to the article, the rule applies to R&D. The vast majority of tech workers laid off in the last two years didn't work in research and development. They wrote regular software for sale, like games, for example. The games industry, while hugely profitable and bigger than TV, movies, and music combined, laid off tens of thousands of people. It's unmitigated greed is all it is.
  • tjchear 1y ago
    > For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs. Salaries, software, contractor payments — if it contributed to creating or improving a product, it came off the top of a firm’s taxable income. According to the article, as long as the tech workers contribute to improving or creating a product (be it games or apps), they count as R&D cost.
    • dtagames 1y ago
      I worked in games 2 years before the studio shutdown. It wasn't because of "R&D" tax breaks. None of the recent layoffs or studio closures are explained by that. Nor are the Microsoft, Dell, or Intel layoffs which aren't game-related.
    • gregw2 1y ago
      To qualify for R&D tax breaks, IIRC having identified qualifying work for a segment of my firm, there must be elements of hypothesis, experimentation, results, etc that I would consider more science-y 'Research' than just turn the crank software 'Development.' It has to be both. And that has to be documented. And offshore research+development doesn't get you a tax break. The irony is that the R+D tax actually discourages onshore pure development as a 'trade' and encourages a split of onshore R+D and offshore D. This sort of thing appears to be self-reported; I don't know if it ever gets audited. I don't know if big tech lies or creatively interprets what counts and that has contributed to the issue. But this article sort of over-represents what qualifies as R&D for US tax purposes.
• potato3732842 1y ago
  >The delayed change to Section 174 — from immediate expensing of R&D to mandatory amortization, meaning that companies must spread the deduction out in smaller chunks over five or even 15-year periods. Doesn't this just amortize out to be roughly the same amount of deduction over the long term? All the big companies mentioned should be relatively unaffected over an N>5 year time period. Also this was something that's been in the works for years so their accountants should have been planning for it so it wasn't a financial shock (and company financials seem to indicate no such shock).
  • yesfitz 1y ago
    If you look at the time value of money[1], a $1,00,000 deduction this year is worth more than $200,000 deductions over the next 5 years. But more importantly, the article claims it was used as a tax shield to grow. "Basically, as long as spending counted as R&D, companies could report losses to investors while owing almost nothing to the IRS." "Once those same expenses had to be spread out, or amortized, over multiple years, the tax shield vanished. Companies that were still burning cash suddenly looked profitable on paper, triggering real tax bills on imaginary gains." 1: https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
    • potato3732842 1y ago
      Sure, but that doesn't account for the allegedly apocalyptic layoffs from companies that don't fit into the "real taxes on imaginary gains" mold. I get that this is bad for the VC monopoly bucks scene, but they were already down for the most part. If the changes are as the article alleges than all these big tech companies that are posting huge layoffs should mostly be fine because it's not a serious change from status quo for them.
      • JamesBarney 1y ago
        Interest rates are bigger motivator of the layoffs than these changes. When interest rates are high that means investors far more heavily prioritize profits today over profits tomorrow. This tax change just made it worse.
• mensetmanusman 1y ago
  I wonder if this was an unintended consequence, or if the politicians backed by big business really wanted to disrupt the software infrastructure.
  • LiquidSky 1y ago
    If this article is accurate it doesn't sound like it. The change was a political tactic to make the tax bill it was part of comply with Senate budget rules on paper. Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. There is a movement to repeal this change, but the effects have already been felt.
    • bigbadfeline 1y ago
      > Apparently this is a common tactic with tax bills, with the expectation that the changes will be repealed or altered in a later bill. None of this adds up. You're saying, the legislators were trying to cheat and because it's a "common tactic" that kind of cheating is somehow good, but it's bad when the cheating doesn't go through? On the other hand, being a common tactic implies that the possibility of it remaining in the books was well understood, and the declared "expectations" carry zero weight as evidence, even less than zero when coming from politicians. Legislation like that has far reaching consequences and pretend "surprise" just confirms the intent behind it. It's only prudent to assume that we have a common tactic case of throwing sheet at the wall to see for how long it'll stick. If there's no backlash the "tactic" will remain there forever. As another example of the same common tactic, consider the fact that all popular browsers have been used as Trojan horses into the users' local networks for like forever. At some point back in 2015 somebody objected so the browser makers started talking about fixing the problem but then stopped talking without fixing it because public opinion moved on to other areas affected by abundant sticky materials... Thus, that particular sheet remained on the wall for another 10 years and counting, and the story may repeat itself again.
      • jrs235 1y ago
        When using bill reconciliation in order to avoid Senate filibusters to pass a budget, certain conditions must be met otherwise regular Senate rules and the need for 60 Senators to be onboard to avoid a filibuster come into play. It's not cheating, it's playing by different rules to get most of what you want/need done and then sometimes those that played and gambled were intending to, or hoped to, make the changes later that require rules. Their hope is that 60+ Senators would be onboard for those changes because they (those that gambled and pushed the budget bill thru) managed to get what they wanted at the expense of #$%#ing something up that most others would then be willing to fix/address.
• dashqueen 1y ago
  This doesn't quite fit into the article and is probably too inside baseball for a general business audience, but as I see it, there’s a real and serious argument to be made here about how Section 174 changes restructured the cost architecture of tech employment (yes, even for big, cash-rich companies). When salaries could be fully expensed, the effective marginal cost of headcount was lower. Amortization means the same engineer now triggers a significantly bigger near-term tax bill. At scale, that’s a serious shift in how labor costs flow through the P&L… functionally, op-ex becomes capex, and cash flow implications for big players run into the billions. But maybe it’s me!
  • walterbell 1y ago
    > op-ex becomes capex i.e. some humans get the same tax treatment as humanoid robots, while LLMs ("AI") are always deductible as op-ex, regardless of function. Draft 2025 spending bill in Congress would revert Section 174 changes for 2026-2029.
    • nickff 1y ago
      Only external LLM use is ‘always deductable as op-ex’. If you build your own server farm and/or developer your own LLM, those are capital expenses which must be depreciated.
      • walterbell 1y ago
        What percentage of LLM use is based on internal purchase of $30K H100 GPUs? OpenAI projected 2025 revenue is $12B.
  • reactordev 1y ago
    Contractors licking their lips at the prospect of being a clients op-ex. I think you’re right and hence the slow down in hiring top talent for top dollar.
  • demosthanos 1y ago
    Isn't this literally the content of the article? What you just wrote down is basically this paragraph from TFA: > And so, on schedule in 2022, the change to Section 174 went into effect. Companies filed their 2022 tax returns under the new rules in early 2023. And suddenly, R&D wasn’t a full, immediate write-off anymore. The tax benefits of salaries for engineers, product and project managers, data scientists, and even some user experience and marketing staff — all of which had previously reduced taxable income in year one — now had to be spread out over five- or 15-year periods. [0] https://news.ycombinator.com/item?id=34627712 https://news.ycombinator.com/item?id=34627712
• potamic 1y ago
  This is insane, how does it make sense? Employee salary expenses are no different from other expenses to run your business. Imagine they did this for raw material instead, a restaurant could only expense 20% of the food that they sell. If they purchased $100 worth of food, but could only sell $50 worth of it, they have to pay tax on that even when making a net loss overall. It just does not make any sense. There would've been a huge uproar if this was done for cost of goods. Why are employee salary expenses any different?
  • UncleMeat 1y ago
    There are other expenses that are also amortized.
  • sokoloff 1y ago
    Now imagine that a restaurant buys 100 tables, 500 chairs, kitchen equipment, cutlery for 800 people, signage, a security system, and does a remodeling before opening. (Or an airline buys an airplane. Or a hotel chain builds a hotel.) Should they be able to expense all of those items that provide value for multiple years in a single year? Does software development provide value exclusively in the year it's done? Or over multiple years?
    • londons_explore 1y ago
      It's only shifting what year the government gets its revenue. The government should simply let the company choose how to do it, but if they choose anything other than year 1 interest will be payable at government bond rates.
      • warkdarrior 1y ago
        It's also massively shifting the companies' cash flows. The company paid $X for R&D this year, but for tax purposes 80% of that $X expense is moved to next four years. So for this year's tax purposes, the company R&D expenses are much lower than what the company paid.
    • demosthanos 1y ago
• GypsyKing716 1y ago
  Love articles that are 39 pages long with one paragraph and 3 ads per page. mmmm.. good journalism.
• dang 1y ago
  Related. Others? The time bomb in the tax code that's fueling mass tech layoffs - https://news.ycombinator.com/item?id=44180533 https://news.ycombinator.com/item?id=44180533 - June 2025 (927 comments) (<-- you are here) Big Beautiful Bill R&D Tax: Will tech go on a hiring spree again? - https://news.ycombinator.com/item?id=44028106 https://news.ycombinator.com/item?id=44028106 - May 2025 (19 comments) The Consequences of Limiting the Tax Deductibility of R&D - https://news.ycombinator.com/item?id=43639202 https://news.ycombinator.com/item?id=43639202 - April 2025 (64 comments) House restores immediate R&D deduction in new tax bill - https://news.ycombinator.com/item?id=39212650 https://news.ycombinator.com/item?id=39212650 - Feb 2024 (8 comments) Ask HN: Best country to run a boostrapped startup from? (After Section 174) - https://news.ycombinator.com/item?id=39098371 https://news.ycombinator.com/item?id=39098371 - Jan 2024 (31 comments) US tech innovation dreams soured by changed R&D tax laws - https://news.ycombinator.com/item?id=38988129 https://news.ycombinator.com/item?id=38988129 - Jan 2024 (3 comments) Ask HN: IRS section 174 – cause of layoffs? - https://news.ycombinator.com/item?id=38957651 https://news.ycombinator.com/item?id=38957651 - Jan 2024 (21 comments) Will US companies hire fewer engineers due to Section 174? - https://news.ycombinator.com/item?id=38931860 https://news.ycombinator.com/item?id=38931860 - Jan 2024 (37 comments) Will US companies hire fewer engineers due to Section 174? - https://news.ycombinator.com/item?id=38870429 https://news.ycombinator.com/item?id=38870429 - Jan 2024 (20 comments) IRS tax code change in Section 174: R&D is an expense - https://news.ycombinator.com/item?id=38642461 https://news.ycombinator.com/item?id=38642461 - Dec 2023 (23 comments) New tax rules on R&D expenses may lead to layoffs for devs - https://news.ycombinator.com/item?id=38636866 https://news.ycombinator.com/item?id=38636866 - Dec 2023 (7 comments) Tell HN: People laid off in my company due to IRS Section 174 changes - https://news.ycombinator.com/item?id=38633668 https://news.ycombinator.com/item?id=38633668 - Dec 2023 (6 comments) Tell HN: Submit comments to IRS re tax treatment of software dev expenses - https://news.ycombinator.com/item?id=38120388 https://news.ycombinator.com/item?id=38120388 - Nov 2023 (225 comments) Software firms across US facing tax bills that threaten survival - https://news.ycombinator.com/item?id=35614313 https://news.ycombinator.com/item?id=35614313 - April 2023 (981 comments) Ask HN: How are you handling Section 174 changes for bootstrapped companies? - https://news.ycombinator.com/item?id=34627712 https://news.ycombinator.com/item?id=34627712 - Feb 2023 (187 comments) https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=%22section%20174%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
• jmyeet 1y ago
  I reject this framing. What really changed things was the end of ZIRP [1] and even then it was opportunistic. Labor costs are a massive cost for tech companies. They have continually tried to suppress wages. In the 2000s, it was the anti-poaching agreement between Steve Jobs, Eric Schmidt and others. In the 2010s, high growth ahnd zero interest meant labor costs continued to balloon. But then Covid came along and was a massive opportunity. A few companies may have needed to do layoffs but that created the opportunity for everyone else. Big Tech just went full Corporate America with a page straight out of Jack Welch: fire the bottom 5-10% every year. Call it "layoffs". It's a direct pay decrease for those who remain (who get assigned the work). Those are still there won't be asking for raises because they're now afraid of their jobs. Very little of this was ever necessary. None of the big tech companies ever came close to making a loss. They've remaining insanely profitable, in total and on a per-worker basis. At different times Google's per-worker profit has approached or exceeded $1 million. The other factor is these companies eventually reached their size limits where antitrust stopped them making any more significant acquisitions. Consider the timing: this change came in 2017. Where were the mass layoffs in 2018? 2019? Also, the 2017 tax cuts contained a massive tax holiday for the repatriation of foreign profits. Mass layoffs are simply wage suppression. It's the end state for any company that can't keep growing the way the market demands: eventually it comes down to cutting costs to make those quarterly profit targets. And in that, they sow the seeds of their own demise. [1]: https://en.wikipedia.org/wiki/Zero_interest-rate_policy https://en.wikipedia.org/wiki/Zero_interest-rate_policy
  • Seattle3503 1y ago
    > Consider the timing: this change came in 2017. Where were the mass layoffs in 2018? 2019? The bill passed in 2017, but the changes to R&D didn't kick in until 2022.
  • khuey 1y ago
    Things can have more than one cause. Even the article only claims this change "has contributed to the loss".
    • jmyeet 1y ago
• svara 1y ago
  > For cash-strapped companies, especially those not yet profitable, the result was a painful tax bill just as venture funding dried up and interest rates soared Can someone explain this? What taxes do unprofitable US businesses owe that this would be deducted against?
  • dadoprso 1y ago
    I thought you could carry forward losses or something. i.e. Once profitable you can use your previous losses as 'tax credits'.
    • satya71 1y ago
      Yes, but businesses operate on cash, not tax credits.
    • edoceo 1y ago
      If you make it that far.
    • mNovak 1y ago
      So you're essentially giving the government a 0% interest 5 year loan, in the amount of the pre-paid taxes
  • mppm 1y ago
    If the business has some revenue, but is not yet profitable after deducting development costs, it can become profitable on paper (and owe tax) if R&D is capitalized instead.
  • deanputney 1y ago
    That is kind of strangely worded, but I think I see what they're getting at. Say you would have been exactly not-profitable ($0) if you could expense all of your R&D as in the old system, therefore avoiding tax. Now with the new rules you may be on-paper profitable because you can only deduct 20% of the R&D as an expense this year. The remaining 80% of that expense tips you over, becomes profit, and that's taxable.
• deleted 1y ago
  [deleted]
• encoderer 1y ago
  How this impacted our business is that when you are doing next year planning, and the goal is to grow the business, it made ads and other marketing investments more appealing versus tech hiring to expand product capabilities.
• wdaher 1y ago
  Worth noting: the version of the Big Beautiful Bill passed by the House ends this particular change, starting in tax year 2025. We'll have to see if this provision makes it through the Senate, and in what form.
  • NewJazz 1y ago
    That's crazy. We're 3 years into a 5 year depreciation cycle, and now they "change their minds". Sure convenient when you know you are in power to supercharge growth and leave a time bomb for the next admin.
  • xbar 1y ago
    The destructive power of the Section 174 change cannot be overstated. It has been reported on a lot, but its harms are generally poorly articulated. I do not like many things in BBB, but I am glad to know there is at least something in there that I can be glad for.
    • naijaboiler 1y ago
      Why sent tech companies and tech workers kick up a fuss when this bill passed in 2017. I remember being mad about it
      • sanderjd 1y ago
        Yeah I think we did kick up a fuss? The better question is why the tech industry seemed to forget that the first Trump administration was terrible...
    • _dark_matter_ 1y ago
      Lol only for it to kick back in in 2029 during the next administration. Your employment has now become a bargaining chip in the GOP's handbook.
      • bequanna 1y ago
        I don't follow. Why is the GOP to blame here? If the other party allows these cuts to expire, why wouldn't you blame that party?
• lifeisstillgood 1y ago
  I’m not sure I fully understand the problem here 1. I start “Facebook for dogs” It’s gonna be massive. For the first year me and five guys code away in the garage and I use my savings / credit card / family trust fund to pay them 100k each. Expenses are 500k, revenue is, amazingly, 1.5M and taxes owed is 500k. At this point turning round and saying the development was R&D, and claiming 500k of tax breaks is just (to me) ripping off the American Taxpayer. And I’m not even an American Taxpayer. If the revenue was zero would anyone suggest that the taxpayer give me 500k to help ? (Ok I would because I like free money but most people won’t) Or am I missing something?
  • wdaher 1y ago
    See my example here for where it ends up biting you: https://news.ycombinator.com/item?id=44180533#44204246 https://news.ycombinator.com/item?id=44180533#44204246
  • lowkey_ 1y ago
    Everything you just said but imagine revenue is $500K, and you spent $500K on salaries for the team. You can only expense $100K of the salary costs this year, so even though you're break-even, you pay taxes on $400K in income. Or, even worse, imagine revenue is $250K, and you spent $500K on salaries for the team. You can only expense $100K of the salary costs this year, you're already -$250K on the year, and now you're paying taxes on $400K in income. You're destroyed. VC-backed startups aren't designed to get profitable quickly, and I don't see that as a problem for the American taxpayer, and nobody is saying the taxpayer is giving money or helping. A business losing money should not have to pay taxes on income, as if it's not losing money.
  • xivzgrev 1y ago
    the idea is that normal business expense are deductible. in this case, your taxable income is $1.0M, and cash flow is $500k ($1.5M - $500k salaries - $500k taxes). now you have to amoritize it over 5 years. so your taxable income is $1.4M ($1.5-500k*20%), taxes are 700k, and cash flow is $300k. Uncle Sam just reduced your cash flows by 40% by a simple tax change. You eventually make up the difference, but for fast growing tech companies, that's a large shift in current flows and significantly changes their investment strategy.
• padjo 1y ago
  “Some spoke on condition of anonymity to discuss sensitive political matters.” - yep this is fine.
• demosthanos 1y ago
  There are some misunderstandings in the comments that seem to stem from not having read the section, so I thought it was worth referencing the actual text [0]. It's quite short and easy to read. The most important bits: * Subsection (a) requires amortizing "Specified research or experimental expenditures" over 5 years (paragraph (2)) instead of deducting them (paragraph (1)) * Paragraph (c)(3) is a Special Rule that requires that all software development expenses be counted as a "research or experimental expenditure". That's it. All software expenses must be treated as research and experimental expenses, and no research and experimental expense can be deducted instead of amortized. Ergo, all software expenses must be amortized over 5 years. I strongly recommend reading the section before forming an opinion. It really is quite unambiguous and is unambiguously bad for anyone who builds software and especially for companies that aren't yet thoroughly established in their space (i.e. startups). Also note that this makes Software a special case of R&D. It's the only form of R&D that Section 174 requires you to categorize as such and therefore amortize. [0] https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174
  • radley 1y ago
    It's not really targeted at tech, insomuch as at Democrats. Everyone assumed it was a traditional accounting hack. But given the timing and the reinitialization, it's clearly political, not economic. The code is a strategic time-bomb designed to cause a high-profile economic downturn during a presidential election cycle, specifically when the following president is a Democrat and Republicans have a house majority. It was used to harm Biden's economy, and it will happen again in 2030 if the next president is a Democrat. While deferred, it will be spun as a major Trump "economic achievement" for the midterms, because companies will be able to afford to hire again. The tech industry is merely high-profile fodder for extreme politics. It really is that petty.
    • victoro 1y ago
      The Democrats had control of the presidency and the house in 2022 when this provision first went into effect but had 2 fewer senators (1 fewer if you count the tie-breaking VP). Why didn't they try to change it? Is there some reason a change in the tax code like this can't be modified or repealed once its in place?
• beezle 1y ago
  Bloomstink has a short article on R&D expenses/tax credits as does Reuters on some of the back and current history. But just as an accounting note: R&D expense has nothing to do with the company having revenues for an existing product, which already is allowed to deduct cost of goods sold, selling and admin expense. It is a cost related to future business and in that regard, it is not crazy to say it should be amortized. That in the past this did not happen, or that accelerated depreciation for other assets is in the IRS code is a function of the government wanting to effectively subsidize business investment. https://pro.bloombergtax.com/insights/federal-tax/rd-tax-credit-and-deducting-rd-expenditures/ https://pro.bloombergtax.com/insights/federal-tax/rd-tax-cre... https://tax.thomsonreuters.com/news/the-future-of-rd-expensing/ https://tax.thomsonreuters.com/news/the-future-of-rd-expensi...
  • klipt 1y ago
    But most employee salaries are deductible right? If you hire a chef at your restaurant, you aren't depreciating their salary. Doesn't that make software engineers one of the few employees with much worse tax treatment?
    • ksec 1y ago
      I think that is the simplest and best analogy I have read so far in the comments.
      • luckylion 1y ago
        The chef doesn't create a meal once that you can sell for the next 10 years though. You pay him for time X, he makes a meal, you sell that meal. That's fundamentally different from regular software development outside of agencies where there is no direct relationship. Software development is closer to an investment than an expense. Amortization sucks in general, yes, because the money is gone and it doesn't affect your taxes to the same amount, but that's not different for any company doing manufacturing or anyone needing specialized tools or vehicles that cost significant amounts.
• DyslexicAtheist 1y ago
  bit of a self-own it seems. Start-ups and early stage companies might simply decide to start in a more friendly tax jurisdiction. E.g.: Switzerland offers a 135% deduction on R&D-related salaries in the year they are incurred, making it an attractive location for tech development EU provides a large pool of experienced developers seeking new opportunities on salaries well below SV. Why pay 500K for a burnt out "rockstar" who spends more time on twitter than doing actual work when you can hire highly skilled people in Eastern-EU (or even in Berlin). Section 174 seems unlikely to progress unless attached to broader legislation. > "More promising is the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), which proposes restoring immediate expensing for U.S.-based R&D investments through the end of 2025. " -- https://www.pwc.com/us/en/services/tax/library/tax-committee-announce-business-and-family-tax-relief-agreement.html https://www.pwc.com/us/en/services/tax/library/tax-committee...
  • renewiltord 1y ago
    That's a good policy but Switzerland is awful for startups: expensive, strict labour laws, few funding opportunities, risk-averse customers, fragmented European market. If I could start anywhere in the World, Switzerland would be above all the war-torn and crime-ridden places, but business-wise it's no good for a tech startup.
• holtkam2 1y ago
  Honest question, is there a community / grassroots effort I can participate in so that this this section 174 change can be reverted to its pre-2022 state? I'm wondering, if such a movement doesn't doesn't exist already, do I need to start it myself?
  • linkjuice4all 1y ago
    - Gather up about 10 million dollars (more will help) - Bribe the right people I hate to provide such a cynical and lazy response but we've got until midterms (maybe) before you really have a shot at 'democratically' influencing the system. For the time being you'll have to work with the mafia that's currently running things and outbid whoever wanted this to happen in the first place.
  • ims 1y ago
    'mjwhansen founded the Small Software Business Alliance specifically to work on this issue: https://ssballiance.org/ https://ssballiance.org/
• sampton 1y ago
  Amortization is bad policy when it comes software. Software is inherently high risk. Every piece of software is unique and does not guarantee steady income over 5 years. Most startups won't survive 5 years to fully realize the deductions. This is the end of US software dominance.
  • timewizard 1y ago
    Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Would this change have had any actual impact on their foundings?
    • typeofhuman 1y ago
      HN has taken a sad turn over the last few years where we see genuine curiosity - such as your reply - met with downvotes instead of replies. I don't have an answer for you. But I support your intrigue.
    • kopecs 1y ago
      Well, presumably the claim would be that a factor in their not having taxable income was the fact that they didn't have to amortize their development cost.
      • joshuanapoli 1y ago
        Yeah; start-ups will start paying tax much sooner since salaries are the main expense in software development, and only a fraction can be deducted per year. The tax change must make things marginally more difficult for young companies that have some revenue, aren't cash-flow positive, and have a short horizon.
        • tomrod 1y ago
          It's not marginal. It significantly impacts sub-$10MM companies.
• deleted 1y ago
  [deleted]
• entangledqubit 1y ago
  From what I understand, this does not actually affect Google. They were already amortizing their R and D expenses. Over long time scales (and big company revenue streams), this is sort of a wash. I think this hurts startups a bit more due to the long timescales involved which eats up much needed cash in the short term.
• layer8 1y ago
  As a non-American, it seems strange to me that the cost of regular software development, i.e. that is neither “research” nor “experimental” in a conventional sense, would be deductible in the first place (amortized or not). Isn’t that subsidizing a whole business sector? Maybe I’m misunderstanding something.
  • pjc50 1y ago
    Most businesses let you deduct inputs and capital expenses from your revenue so that tax only applies to profit. Since this is done on annual buckets it's very common to try to move items in both columns between years to minimize tax.
    • layer8 1y ago
      So if company A pays company B to develop some software, that revenue for company B (or rather, its profit) is still taxable? Then it makes sense I guess.
      • deleted 1y ago
        [deleted]
      • monkeyelite 1y ago
        The revenue minus expenses is taxable, yes. And if the business itself makes no money, that means all of it was taxed through payroll.
  • simantel 1y ago
    Businesses are taxed on profits, not revenue. Paying people to write code is an expense, so you'd normally deduct that expense (plus all your other expenses) from your revenue to arrive at an amount that should be taxed.
    • bravesoul2 1y ago
      That's the rub. Is it an operational expense, like rent or a capital expense, like buying machinery? It is sort of between the two in my view and is highly dependant on what the software engineer does each day. Are they fixing a bug, helping a customer, refactoring? I think that is operational. Are they building out a new feature? That is capital. But it is not quite like buying equipment because it adds no value to the books. So depreciation seems off. But the same issue applies to other roles. Is a sales persons day trying to land a sale, or trying to develop the business. It all comes down to "intangible assets" and whether you are making them. I think it is easier to just say if you are paying someone to work then you can deduct. There must be better ways to claw it back. The whole reason for most business to exist is to use operations (operational costs) as a lever to increase the growth and intangible value of the business.
• Reason077 1y ago
  The OBBBA (“Big Beautiful Bill”) suspends amortization requirements for domestic R&D expenditure, and explicitly allows domestic software development as an R&D expenditure eligible for immediate expensing. The new rules would apply from 2025 to Dec 31, 2029: https://www.crowell.com/en/insights/client-alerts/house-committee-passes-part-of-big-beautiful-bill-containing-noteworthy-improvements-to-research-and-development-incentives-for-companies https://www.crowell.com/en/insights/client-alerts/house-comm...
  • Terr_ 1y ago
    That "suspends" should be understood as "continues to hold-hostage" / "renews as a time-bomb to screw over some other party".
    • sherburt3 1y ago
      Removing it would make Congress less powerful, and we can't have that now can we.
      • rurp 1y ago
        If anything it has been the opposite problem, with modern congresses having been more than happy to delegate away their powers. You might have heard the recent tariff news for example.
        • sherburt3 1y ago
          Presidencies last 4-8 years, congressional careers last decades.
          • Braxton1980 1y ago
            Avg for house is 12.5 and 8.5 in senate
            • sherburt3 1y ago
• wk_end 1y ago
  Why is this the first we’re hearing about this, three years in? The article says these companies blamed other factors for the layoffs - why?
  • tomrod 1y ago
    It's not the first time many have heard about it.
  • madaxe_again 1y ago
    “We are heavily subsidised by taxpayers” is not great optics.
    • anp 1y ago
      To head off the likely questions, I downvoted this comment because it is a gross misrepresentation of section 174 and the changes made to it.
      • madaxe_again 1y ago
        What have I grossly misrepresented? Or are you arguing that a tax rebate is not a subsidy? I haven’t even mentioned the changes made.
        • anp 1y ago
          To start, rules for deductions aren’t tax rebates. Rebates also aren’t necessarily subsidies unless they’re targeted. Deciding whether labor is a capital or operating expense and deciding how to depreciate it if capital is also not a subsidy.
          • madaxe_again 1y ago
            Would you like a razor with which to better split hairs? Also, I don’t appreciate your blatant racism.
  • 1y ago
• wenbin 1y ago
  Let me guess - the keyword here is "Section 174", just from the title alone :) Dealing with Section 174 amortization in those first one to three years is a real headache (and your tax bill ends up higher than if it didn’t apply). Once your startup survives that the first few years of doing Section 174, things do get easier... but, sadly, most don't make it that far.
• silverlight 1y ago
  I made one of the original posts on HN about this years ago after hearing about it from my CPA. Both then and now these changes make zero sense to me as a matter of good policy. I am also still surprised at the number of people in tech who either haven’t heard about this or are willfully ignoring it and likely filing their taxes incorrectly.
• e40 1y ago
  It's not only that, ZIRP[1] contributed. Also, the 10+ years before the layoffs started tech companies were on a hiring binge. Much of big tech was hiring to keep people off the market and off their competitors payrolls (this is from friends of friends in FANG HR departments). These were high paying jobs, too. [1] https://news.ycombinator.com/item?id=44141650 https://news.ycombinator.com/item?id=44141650
  • mountainriver 1y ago
    We are at a bad inflection point of Zirp, tax changes, and AI. All of which make hiring engineers unattractive
  • closeparen 1y ago
    It should be illegal to post graphs that start in 2020 when talking about tech hiring trends. The relevant comparison is probably the 2014-2019 era, not the peak pandemic craziness.
  • tempeler 1y ago
    In knowledge-based white-collar work, there has been a significant increase in productivity in recent times. Tasks that once took days or even weeks—such as research, content creation, and visual generation—can now be completed within minutes. At the same time, both the speed of production and the quality of output are continuously improving. The outcomes are unavoidable.
• avsteele 1y ago
  This is about way more than software. It's all R&D It's effectively 6 years too. You only get to depreciate 10% in 1st year. This might have killed my company if it was around during first years. See my comments on the previous discussion (Nov 2023) here: https://news.ycombinator.com/item?id=38145630 https://news.ycombinator.com/item?id=38145630
• john_doe_hn25 1y ago
  [dead]
• TrevorFSmith 1y ago
  So, we want incredibly profitable companies like Google, Microsoft, and Apple to take their software development costs and subtract that from their tax bill? These are the same companies that file patents so nobody else can use the ideas that they developed at the expense of public services. How about making it a tax break only for small and medium sized companies?
  • imacomputertoo 1y ago
    Fix the patent problem. Leave the r&d right off alone.
• bravesoul2 1y ago
  Could this lead to a new financial product that lends money to companies to pay this tax secured on the future deductions? This would be a no go for startups though.
• GuinansEyebrows 1y ago
  so will this incentivize a return to revenue/profit-driven business models? will we start to see a reduction in venture capital burning money on revenue-negative startups?
  • mixmastamyk 1y ago
    Higher interest rates were enough to help in that regard. As it stands, this is an end to innovative startups in the US. Unless bankrolled by very deep pockets. The type of pockets who typically prefer the status quo and are not particularly interested in cost-efficient innovation.
• ghiculescu 1y ago
  The most fascinating question is not "How did a single line in the tax code help trigger a tsunami of mass layoffs?" but how did a single line in the US tax code help trigger a tsunami of mass layoffs in other countries?
  • ec109685 1y ago
    Because people make stupid correlations for clicks.
  • jjmarr 1y ago
    There's a 15-year amortization period if a US company hires an offshore developer. It's only a 5-year period if the developer is American.
    • ghiculescu 1y ago
      Did you know that other countries have software companies too?
      • mixmastamyk 1y ago
        You're undoubtedly aware the US has an outsize influence on the sector. Also this line of argument rests on the idea that the downturn is exclusive to Section 174, but it is not. Raising interest rates across the world are a major factor.
      • jjmarr 1y ago
        Yes. I'm in one of those "other countries" and talented people aim for American companies with local offices. They pay more and hire more.
• rights_reminder 1y ago
  If anyone cares about combatting government propaganda in the US, do this: Query any search engine for "are US income taxes direct or indirect taxes" Every one will tell you that they are direct taxes. This is false. The supreme court has exclusively held that income taxes have always been indirect taxes (excises specifically, read about what an excise is in any authoritative source on tax law) in a constitutional sense. (See Brushaber v Union Pacific RR Co. 1916, Moore v U.S. 2024) The sixteenth amendment did not give congress the power to directly tax citizens (or domestic corporations) and the complexity of the tax code is an attempt to obfuscate this fact, but the code is not inscrutable, it has rules. Unsure of why this matters? Look up the difference between direct and indirect taxes in US law. None of these deductions matter unless you are a foreign corporation. I have tried commenting about this in other income tax related threads (this is my alt account), but people here don't like the idea that there is government propaganda in the US, or that most people are wrong and blindly accept the socialization about taxation without verifying what the law says. I realize this is a disturbing truth to accept, not least because it involves accepting that most people who have been prosecuted for income tax crimes are only guilty of ignorance of the true legal purpose of the forms they signed. You can easily verify that most accountants and tax attorneys do not know what they are talking about by asking them this simple question about direct vs indirect taxation. This is not legal advice, it is a wakeup call.
  • dennis_jeeves2 1y ago
    > This is not legal advice, it is a wakeup call. The masses are in a persistent state of slumber, so they will never wake up. Depressing but true.
  • deleted 1y ago
    [deleted]
• jwlake 1y ago
  Its so funny to me that people freak out about amortization when I spent several years at a public company having to document my work as being R&D to amortize it to make our EBITDA look better.
• UltraSane 1y ago
  I worked as a network engineer for a software company and had to report how many work hours was R&D. It was very silly.
  • Nemo_bis 1y ago
    Indeed. This is only a problem because software companies try to classify most of their expenses as "R&D" only to look more profitable than they really are, but at the same time they don't want to pay taxes on those supposed profits. For honest companies which don't capitalise their wage expenses, nothing substantial changes.
• tmaly 1y ago
  I thought this was changed in this new spending bill they are trying to pass now?
• downrightmike 1y ago
  Investors and stock holders should be extremely outraged that all of these businesses are knee capping their future profitability. Can't make all those future pension payments if all your investments can't stay relevant in the market. Some people will point out that AI will fix this, no it won't: 1) The real cost is higher than anything you'd pay for a person an there is not likely any real change there. 2) AI will be lies like Actual Indians that won't scale 3) Here's the kicker: If AI does succeed, now these multi-billion dollar firms will have to compete with multi-billion dollar single person businesses, that eat their lunch Its a race to the bottom right? That means you need to invest in the business and all these layoffs are exactly not that, and will leave companies unprepared for the next 10 years. Remind me in 2035.
• kevindamm 1y ago
  This seems a clear disadvantage to corps with employees but it also works to the advantage of LLC solopreneur types who aren't paying themselves.
• Duskgmxx 1y ago
  [dead]
• rayiner 1y ago
  > For almost 70 years, American companies could deduct 100% of qualified research and development spending in the year they incurred the costs This is an artificial subsidy. That’s not how the tax code treats other types of investments that generate recurring income.
• almosthere 1y ago
  The top of the article blames Trump for some reason, when every time this is brought up, everyone sites Biden Admin for messing this up.
  • mempko 1y ago
    Because it was Trump's tax bill. It was a bad tax bill, and not only because of this. It further accelerated inequality.
• hollerith 1y ago
  My reaction to learning about this is that it is good news: this explains the weakening of demand for programmers, but unlike the AI explanation, this explanation does not come with a large risk of the demand becoming much weaker than it is now. Also, finally programmers with the right to live and work in the US catch a break: salaries for US-based programmers can be amortized over only 5 years as opposed to the 15 years of non-US programmers.
  • safety1st 1y ago
    I mean, the link not many people have made is that executives want to replace programmers with AI because of Section 174. It has effectively become a lot more expensive and difficult to employ a programmer. Once this change went into effect we started to see hundreds of thousands of layoffs. Then tech executives started aggressively talking up how you could use AI to write code instead of having humans write it. Now of course reducing headcount and the associated expenses and replacing them with a bot sounds tempting to executives no matter what. But it sounds REALLY tempting when you've been on a hiring freeze since 2022 due to the fact that you can no longer deduct employee salaries in the year you pay them out. Bear in mind that both Republicans and Democrats say they want to fix this and haven't done so due simply to gridlock and government incompetence. I think most software businesses are taking a wait and see approach. Don't hire until this thing gets fixed. In the meantime, double down as hard as you can on automating those programmer jobs out of existence, in case the law never gets fixed. Section 174 is the root cause.
• Fritatta 1y ago
  This article was so clearly written with AI it hurts.
• Huxley1 1y ago
  I only recently learned about the Section 174 change, and honestly didn’t expect it to have such a big impact. I used to work at a small startup, and most of our spending went toward engineers’ salaries. If we had to amortize that over several years back then, I don’t think we would’ve made it. It’s surprising how a single line in the tax code can quietly make it harder for small teams to hire. Makes me wonder how many other policies are silently shaping things behind the scenes.
• dclowd9901 1y ago
  Meta: god articles like this drive me crazy. What ever happened to the inverted pyramid hierarchy of information? I have to read 3 paragraphs of unmitigated filler before they actually tell me what's changed. It's not just this article, it seems like every article on newer media sites is like this. I understand why, but fuck them very much and the incentives that drive this behavior.
• spullara 1y ago
  at least all the future expenses will be AI instead of people /s
• Dusksky 1y ago
  [dead]
• anymouse123456 1y ago
  There is definitely a lot of misunderstanding here. This provision can and does lead companies to owe significantly more in taxes than they make. The only reason it hasn't been bigger news, is because most companies are pretending it doesn't exist and just sweeping it under the rug, hoping it will get fixed before enforcement gets serious.
  • joshdavham 1y ago
    > The only reason it hasn't been bigger news, is because most companies are pretending it doesn't exist and just sweeping it under the rug, hoping it will get fixed before enforcement gets serious. Why pretend that it doesn’t exist? Why not vocally lobby for a change in the tax code?
    • samus 1y ago
      There is bipartisan support to repeal the change. Meanwhile, further changes to the tax code are being prepared by the administration, very probably containing further such time-delayed footguns that will be the problem of the next administration to clean up, making them look like they raise taxes.
      • anymouse123456 1y ago
        This change was added in 2017, triggered in 2021/2022. It's been the policy for years now. There is very little pressure on elected officials because big cos can afford it and it bankrupts their tiny future disruptors. Why would you let it be fixed?
        • samus 1y ago
          Nope, payroll is a significant part of the expenses even of FAANGs. Or at least of the entities that employ people in the US. And they very much benefit from the startup ecosystem as they can just cherry-pick among them, buy up prospective disruptors and new technologies, and disassemble them for spare parts. Anyway, here is more information about the bill. Let's see what happens to it: https://www.kbkg.com/feature/lawmakers-introduce-bill-to-retroactively-fix-rd-174-expensing https://www.kbkg.com/feature/lawmakers-introduce-bill-to-ret...
• anymouse123456 1y ago
  If you didn't know about Section 174 until 2025 you have no business being in a leadership position anywhere, period. This has been a slow moving disaster for years now and people have repeatedly tried to raise the alarm. Just crickets and layoffs.
• gsky 1y ago
  Maybe Shareholders are demanding companies to cut overhired and improve profits
• supernetworks_ 1y ago
  Manufacturing is affected also it’s not just software. Best way around it is deficit spending for growth
• jbverschoor 1y ago
  Earlier discussion: https://news.ycombinator.com/item?id=44028106 https://news.ycombinator.com/item?id=44028106
• jen729w 1y ago
  > “I work on these tax write-offs and still hadn’t heard about this,” a chief operating officer at a private-equity-backed tech company told Quartz. “It’s just been so weirdly silent.” Hasn't Ben Thompson of Stratechery spoken about this a number of times? I'm aware of this 'feature' and I'm not even in the USA, let alone a COO at a private-equity-backed yada yada.
• BlueTemplar 1y ago
  Where is the comparison with the "control group" : non-US software companies ?
• aussieguy1234 1y ago
  I have to say I do have some sympathy for what's happening in the US at the moment. Trump is just getting started. By the time he is finished, your economy will be shot to pieces. The US dollar will no longer be the reserve currency for global trade.
• thenumpaduser 1y ago
  [flagged]
• BlazeNova 1y ago
  [dead]
• pzo 1y ago
  For me the worst things is that they treat all software as R&D. I understand in maybe some situation it could be abused but imagine established company having non innovative software that keeps engineers only for bug fixing and security patching and basic maintenance. In true spirit this is not research for sure. It's equivalent of someone having a hotel and suddenly telling that their cleaners, security, gardeners, receptionist qualify as R&D which would be nuts. AFAIK it was also affecting more freelancers outside of US since amortisation is 15 years. For EU citizen IMHO this is equivalent of US putting tariffs on outside world. I wish EU at least try to fight back and revenge on US Tech by increasing taxes or also making all US tech bought by EU companies to be 15 years amortised so they have taste of their medicine.
• Temporary_31337 1y ago
  Question, if you have to amortise it over 5 years, and you can survive the initial 4, does it break even in year 5 (assuming stable employment)? Ie you amortise the previous 5 years (20% each) which works out to 100% anyway?
  • randomNumber7 1y ago
    If you give me 1000$ today and I give you back 1000$ in 5 years do you break even?
    • owebmaster 1y ago
      This US American idea of paying taxes = giving money away is weird. Especially coming from tech people, as what is preventing other nations from taxing the hell of big/US tech is the US government and its threats.
      • randomNumber7 1y ago
        No one said what you are implying. The company has to pay money upfront (as salary) and then gets it back later.
• testrun 1y ago
  It seems that there is quite a bit of confusion about this. What this does is that it reduce your deductible cost in the tax year. First you have to make a profit (tax is on profits). Secondly, what this does is to limit your software development expenses for tax purposes in the current year because the development cost is seen as a capital cost that will be amortized over five years opposed to operating expenditure in the same year. If you are a startup and not make profits, then the loss will be less in the current year, but either way, your tax liability is the same: $ 0. So software development is moved from opex to capex.
  • jere 1y ago
    I can see why it would affect startups not making a profit but why would it dramatically affect FAANG (e.g. some of the most profitable companies in the world that have been running for decades)? The article contributes all these large layoffs in FAANG, in part, to this tax rule.
    • testrun 1y ago
      Because they are profitable. So the cost is deductible over 5 years, instead of one year. A very simple example: Revenue: $ 1 000 All other cost except software: $ 500 Software cost: $ 100 Net profit (if software is allowed as opex): $400 Tax on $400 (@30%): $120 Net profit after tax: $280 However, if it is capex(amortized over 5 years): Revenue: $ 1 000 Other cost (except software): $500 Software cost: $ 100 Net profit before tax: $ 400 Important: But now for tax purposes you can only deduct $20 this year as a cost ($100 amortized over 5 years) So now you have to add back $80 to net profit for tax purposes: $480 Tax (@30%): $ 144 Net profit after tax: $400 - $144 = $256 So the difference is $280 - $256 = $24 Just a few notes: 1. I assume tax rate at 30%, it can be something else, principle stay the same 2. That all other expenses are tax deductible
      • jere 1y ago
        There's a difference of $24 but I have $1200 in cash reserves. And I make up the difference later. Oh no! Guess I have to lay off 10% of my employees now.
• kvakerok 1y ago
  And there I was wondering why R&D was getting moved to Canada.
• nickledave 1y ago
  I was part of a small R&D company that had a promising product (can't say more, NDA) and we had to shut down because of this. Thankfully the founders were able to get us acqui-hired or I'd be in a much worse position. But that IP is just lost to history AFAIK, in spite of significant investment of US research $.
• bawana 1y ago
  Deferring depreciation and deductions decreases their value as inflation happens. So it is a double whammy-not only is your profit reduced this year (and the impact that has on your stock price or return to your private equity investors) butthe value of that deduction decreases over time. So it is not a 'wash'.
• shadowgovt 1y ago
  Oh interesting. In 2022, the company I worked for folded because a primary investor spontaneously pulled out. We were nearly 100% R&D and the sudden change in relationship was surprising.
• inadequatespace 1y ago
  The title of this article implies that it is a major or even the only cause for mass tech layoffs, which I strongly doubt. For example, rising interest rates I'm sure also independently contributed. I would be interested to if anyone has gotten a sense of exactly how much this has contributed.
  • shawndumas 1y ago
    agreed, the interest rates and the overestimation on the stickiness of the pandemic’s increase in internet usage post-pandemic are the primary other contributing factors that, imo, represent the lion’s share; even allowing that the tax changes are tertiary is a stretch much less as the primary/secondary reason
  • mixmastamyk 1y ago
    It's hurts small businesses the most, and practically destroys startups. Titles are simplified by necessity and I think the phrase "...that's fueling..." doesn't strongly imply exclusivity.
• achenatx 1y ago
  If your payroll ends up being about the same, after 5 years it all evens out in the sense that you will be expensing 100% of your payroll each year (but the expensing will be 20% from each of the prior 5 years). If your payroll is quickly growing You experience the problem on all payroll growth. If your payroll is decreasing, you get a tax benefit. Your outgoing cash is less, but you are getting deductions from prior year expenses.
  • bequanna 1y ago
    Your not taking into account the time value of money. You always want to expense sooner. Additionally, having to wait 4 additional years to deduct that 80% is a huge drain on capital. Combine this with higher interest rates and the effect is essentially pouring sand into the gears of the tech industry.
  • aoeusnth1 1y ago
    No, it's always strictly worse because you could have bought bonds or deployed the capital in some other way with that money.
  • dustbunny 1y ago
    Sure if you big enough to ride out 5 years but if your a hungry struggling bootstrapped startup, this can be game over.
• aporetics 1y ago
  That’s not what “ghost in the machine” means.
• aporetics 1y ago
  That’s not what “ghost in the machine” means
• k3vinw 1y ago
  Ironically the debate/discourse here is healthier than anything we see from US Congress. Presidents have a limited number of terms they can serve, but there is no limit on the House and Senate and change is hard if not next to impossible because of this. Term limits would be a good start to introducing positive changes, but good luck finding the necessary majority to vote against their power and very cushy and comfortable lifestyles.
• robomartin 1y ago
  I think people are misinformed about how to deal with 174. That said, yes, a repeal would be a good idea. Hopefully that happens through BBB in the next month or two. You do not have to amortize 100% of your engineering costs. Not even close. Here's the key: Development costs incurred to remove uncertainty are amortized. All other costs are deductible during the tax year where they are incurred. How does this work? You are going to design a new robot arm. In January, you spend $100K to "remove uncertainty". In rough strokes, this means discovering all the things you don't know and need to know for this robot arm to become a product. This amount will be amortized over five years under 174. Now, with uncertainty removed, you spend an additional $1.1MM from January until December for engineering implementation. No uncertainty being removed. Just building a product. This is 100% deductible that tax year. Analogy: You want to build a new brick wall with specific properties. You spend $100K to develop a new type of brick and $1.1MM to build the wall using that brick. The $100K is amortized, the $1.1MM is deductible in one shot. BTW, at year 6 the amortization schedule reaches steady-state and you are amortizing the full $100K every year. In other words, the impact of 174, if treated intelligently, is the time value of money until steady state is reached for the engineering costs incurred to remove uncertainty. That said, I hope the BBB repeals this. https://www.law.cornell.edu/cfr/text/26/1.174-2 https://www.law.cornell.edu/cfr/text/26/1.174-2
• dustbunny 1y ago
  Didn't realize this was due to Trump's first term. Why aren't the All In podcast bros ragging on Sacks about this!?
• unit149 1y ago
  [dead]
• napierzaza 1y ago
  [dead]
• kunalgupta 1y ago
  everyone in tech saw this coming?
• mccolin 1y ago
  > Fixing 174 would mean handing a tax break to the same companies many voters in both parties see as symbols of corporate excess. This is frustratingly accurate. Through a zero sum political lens it'd be a handout to "big tech," so many politicians argue for keeping this on the books, but in reality S174 deeply affects small companies, new companies, boutique agencies, and individuals who want to consult or start smaller operations. I worked for a ~20 person shop that was gutted by this tax code change. It completely changed the affordability of talent.
• sumanthvepa 1y ago
  Here's a neat trick: Section 174 US tax code changes make purchasing a SaaS license a better deal than building in house. So do the R&D in a jurisdiction like India where the you can still deduct 100% of R&D under section 35. And purchase the SaaS in the US. (You have to be a non-US company for this to work and there are more details. Talk to your accountant.) Edit: fixed typos
• jppope 1y ago
  Can someone qualified answer a couple of quick questions here: * Hiring a company to do software development is completely deductible or is still considered R&D? And there isn't any difference in regard to where the company is located? * That company who performs the software development however, they have to pay the taxes since they are doing the development... so they are just going to raise their rates then correct? Or since they are providing a service to the company and it is work for hire does it not count? * All other R&D expenses are still deductions including hardware development? Where is the line drawn? If you are doing the software side for a hardware product, that would be hardware correct? * For founders, you would just take a dispersement instead of taking a salary if you are developing software? Or is that irrelevant?
• g42gregory 1y ago
  Big Tech companies have a direct line to the US Governments. Whether it’s former Twitter and Biden or Palantir and Trump, they can pick up the phone and change this. Are you telling me that this law affects these tech companies so much and they just let it stand? I find this improbable.
  • mixmastamyk 1y ago
    It primarily destroys new startups and hurts small business, which do not have the clout you suggest. BigTech can barely hear the bump in the road while sitting on billions of cash reserves. Still, they had layoffs for this and other reasons.
• Dig1t 1y ago
  > A quiet change under Trump helped dismantle it So it’s a tax break for tech companies and the problem is that Trump got rid of the tax break? What happened to making companies “pay their fair share”? I have such cognitive dissonance, I am constantly hearing about how Trump is evil because he wants to give tax breaks to companies. Now the problem is that he’s NOT giving tax breaks. It’s almost like no matter what Trump does the news will cover it negatively.
• burnt-resistor 1y ago
  The America government now has the best socioeconomic footgunning snipers that don't even do the covert job of making the 0.003% richer over the long term properly anymore. America's balance sheet distribution (not income) breakdown: 8.5% $1M+ 1.6% $10M+ 0.003% $100M+ 0.00026% $1B+
• polski-g 1y ago
  So why don't they just reclassify the employees as network engineers to get around this?
  • mixmastamyk 1y ago
    If the difference is nontrivial you'll get a correction letter from the IRS listing the bill and penalties.
• deleted 1y ago
  [deleted]
• throwaway-blaze 1y ago
  It seems like most of the "woe is me and my startup" problems people are talking about could be solved with a revenue floor. If this only applied to companies making, say, $50mm+ per year or with software-related R&D expenditures of say $10mm+, it would not hit startups or innovative small companies working on far-flung ideas. I feel bad about those laid off from Meta and MSFT but I will not cry for those companies.
• BobbyTables2 1y ago
  Wonder how much of the layoffs were due to the tax deduction change and how much was due to executives being blindsided by their accountants come tax time. Once asked about this change during an all employee meeting. Even a large software company should care… The executives were not even aware of the policy change…
• freeAgent 1y ago
  I don't understand why this article is written as though amortization of R&D spending's costs is the same as completely eliminating their tax benefit. It seems that this essentially causes a large spike in tax revenue in year 0, which will revert to the mean in years 5-15. Companies now amortizing R&D essentially just have to build up those years of R&D spending backlog. Once they have reached their amortization threshold, they're essentially receiving the same tax break they had before. Right?
  • majewsky 1y ago
    In the stable state, both situations (immediate writeoff vs. amortization) would indeed be identical (assuming constant salary expenses over time). The problem is that, when switching from the immediate writeoff regime to the amortization regime, you do not have a backlog of past-year expenses that are in the process of being amortized, so there is a sudden jump from being able to write off 100% of relevant expenses to only 20% of them. Given that shareholders are notoriously interested in short-term profits, hitting profit targets requires either expanding revenue or slashing expenses.
    • freeAgent 1y ago
      Yeah, and that cliff is why they put this change into the 2017 tax reform. It'll goose federal tax revenue for 5 years in the back half of the CBO's 10-year projections to make the changes appear revenue neutral overall. In any case, the impact started in 2022 and it's now 2025. We're already over halfway to steady-state.