Domestic R&D costs must be amortized over 5 years and overseas R&D over 15 years.
This means if your startup makes $1M in revenue and spends $1M on developers in despite losing money you will end up owing $200,000 in taxes.
It has become absurdly expensive to be a revenue generating + pre profit tech startup in the US. Moving our company to Canada would save $500,000 in taxes but would be a total nightmare logistically. Honestly this shit really sucks and is really demotivating.
@lovegodhatesin Yes. But unfortunately even if this passes it only applies to domestic. So international software devs are still amortized over 15 years which for a startup basically means you can’t deduct software engineering related expenses at all.
The majority of our team is overseas. So either we fire everyone, go bankrupt or we move the company.
@carvellia Well I am 100% domestic, so good that I get the break ;P As an American taxpayer, I am 100% Ok with not giving a tax break to money spent across the pond.
@moanalua The only reason is having raised money moving the company on paper would be complicated. But paying 250k to the tax attorneys and lawyers to save 500k/ year is worth it I guess.
@carvellia There were quite a few companies trying to move some engineering salaries to R&D for the tax credits but it was hard to justify. To me, this reads as "if you want to classify 100% of an engineer's salary as R&D expense you can without worrying about justifying" not "you have to consider all engineers as R&D".
@thethao247h You are not reading it incorrectly. All software engineering is R&D but despite that not all software development qualifies for R&D tax credits. There is NO option to deduct your software engineer expenses.
I think a lot of people are making the assumption that what I am saying is too ridiculous that it couldn’t be right that they would make such a stupid law but it is.
@carvellia I mean this will bankrupt every startup so I guess pay yourself, declare bankruptcy every year, and sell the software to a new entity for a dollar every year
@carvellia Depends on how fast you develop and when you become profitable, if your revenue ramps up linearly over 3-5 years and lags behind your development costs it might even be beneficial, or at least the effect won't be nearly as dramatic as your example. This taxation isn't fundamentally different from the way other industries are taxed for development costs, the main problem seems to be that it's done in a rather abrupt way. I guess the intent is to bring back software jobs to the US and stimulate the domestic market for software products, as buying a software subscription or service becomes way more attractive than building the software yourself. Actually makes a lot of sense to me and could be great for B2B SaaS startups as enterprises have more incentives to buy your software than to "reinvent the wheel" internally.
@harpazo56 There is no benefit? You could always carry the losses from on year to the next. The example is my own company, it’s not made up and the result will be us leaving the US.
Your correct that building software becomes far less attractive. But this mostly applies to startups. A giant enterprise doesn’t care if they pay more taxes this year to save on taxes in 5 years. Startups, especially bootstrapped startups get absolutely hosed by this. Many would be bankrupt from the tax bill.
Why on earth would you want to discourage R&D and defend this Trump tax bill is beyond me.
