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You absolutely misunderstand Section 174 and you are spreading misinformation. The only companies this affected are those right at the margins of becoming prof
by blindriver 1y ago
You absolutely misunderstand Section 174 and you are spreading misinformation.
The only companies this affected are those right at the margins of becoming profitable. It doesn't affect new startups and it doesn't affect established businesses. And if you are at the margins of becoming profitable you have likely accumulated more than enough tax credits for all your losses.
The changes to Section 174 is not the explanation of why software engineering jobs were lost in 2022. They were lost because every company overhired from 2020-2022 and they have to absorb it given the drop in activity once the Pandemic was over.
- cobbzilla 1y agoNot entirely accurate. An unprofitable company that is acquired for its tech or team might have a huge amount of tax credits that they can’t use, but the acquiring company can. This can make an acquisition more attractive, even if the target company never made any money.
- TuringNYC 1y agoYou are right that it creates residual value which might be purchased for value (probably at a discount.) However, it doesn't help the startup actually pay the bills while it operates. Historically, the R&D payroll just wiped out same year revenue and you essentially did cash accounting. After Section 174, you had to finance the R&D by borrowing or just hiring less.
- blindriver 1y agoYou won’t lose the tax credits they only get time shifted.
- cobbzilla 1y agoI was responding to “The only companies this affected are those right at the margins of becoming profitable.” It also affects wildly unprofitable companies that have burned lots of cash and never made any money. And you do “lose” the tax credits upon acquisition - they’re not only time-shifted, they are company-shifted.
- TuringNYC 1y ago>> You won’t lose the tax credits they only get time shifted. Yes, from a value perspective you do not lose the tax credits. But from a "cash" perspective, how do I pay my tax bill in years 1, 2, 3, 4?
- utyop22 1y agoThis only makes sense if you have taxable income :))) and if you dont in the near term, the present value of those tax credits are lower.