Also: this specifically singles out software development for ??? reasons.

Office Manager: 100% expense.

Software Engineer: 20% over 5 years (actually only 10% for the first year).

If they’re international then 6.67% over 15 years.

Not only that, but the effect “stacks” over the years.

  So year 1:

  1,000,000
  - 100,000
  ————————-
    900,000 Profit

  Year 2:

  1,000,000
  - 200,000
  - 200,000
  - 100,000
  ————————-
    500,000 Profit

  Year 3:

  1,000,000
  - 200,000
  - 200,000
  - 200,000
  ————————-
    400,000 Profit

  Year 4:

  1,000,000
  - 200,000
  - 200,000
  - 200,000
  - 200,000
  ————————-
    200,000 Profit

  Year 5+:

  1,000,000
  - 200,000
  - 200,000
  - 200,000
  - 200,000
  - 200,000
  ————————-
          0 Profit

By the time you get to year 5, you’ve paid tax on $2,000,000 of phantom profits you never had.

If you’re a C Corp that’s $420,000 in extra federal taxes (plus whatever state tax).

If you’re a smaller company you’re probably a S Corp and federal and state tax could be ~50% passed through to your personal return.

How any owner survives that, I’m not sure.