Tech Layoffs due to IRS tax code change | Hacker News Reader

Tech Layoffs due to IRS tax code change

twitter.com

35 pointsnpalli7 comments

So if you employ a software developer you can’t expense their salary?

Let’s say I hire a dev for $100k/yr and my product does $100k in revenue which just covers the developer’s salary. I have $0 left in the bank but owe tax on $80k in profit in the first year, is that correct or am I completely misunderstanding?

I desperately want an answer to this, too. I’m trying to start a business right now and I assumed, foolishly, it seems, that I would be able to guesstimate business expenses as (gross income - (hardware costs, api costs, etc) - employee wages) and it doesn’t sound like I’m going to be able to do that at all, and *all* of my math is harmed.

That is correct. You invested $100k in developing a new product. Even if you fired your developer today, that product will earn you income for years to come. The general principle is that when you make investments (versus pay operating expenses), you can't deduct the cost of the investment up front, you have to deduct it over the "life" of the investment. In the case of developed software, it's "life" is deemed to be 5 or 15 years for tax purposes.

Previously they made an exception for some kinds of R&D (versus other kinds of investments), so that they could be deducted all in the first year, within certain parameters. The TCJA took away that special treatment (to pay for overall tax rate cuts).

https://news.ycombinator.com/item?id=34627712

This really should be discussed more here as it has the potential to shut down a broad swath of the industry and strangle nascent companies in their crib.

I'm curious how this impacts companies hiring internationally via an employer of record (such as remote.com or deel)

Those companies are paying a U.S. company for services, and the international company (which owns the legal entities in every country they operate in) hires the employee directly in the country they operate in and assigns them to the client.

Would that that fall under the 5-year amortization or the 15-year amortization schedule?

Good, we all want well off people to be taxed more.

Reply on news.ycombinator.com