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Comment by darth_avocado | Hacker News Reader

> A company has $1.2M in revenue; and $1M in costs (let's assume all costs are employing devs fulltime).

> Before 2022: the profit of the company is $200K. Pays corporate tax on this.

> In 2022: the profit of the company is $1M (of the $1M in salaries paid for devs, this needs to be amortized over 5 years: so $200K can be amortized for the year). Need to pay corproate tax on this. But the business might not have this much cash on hand, and so needs to borrow at a high interest rate.

Can someone ELI5? If the salaries are $1M, how can you consider profit to be anything but $200k? How does the profit become $1M?

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That's the change, salaries can no longer be counted against revenue in the same year and has to be amortized. For tax purposes, you now have a profit of $1M (1.2M of revenue - (1M of salary * 0.2)). This makes sense for assets right, if you buy an excavator worth $1M you shouldn't be allowed to count that all against your profit because you still have ~$1M worth of excavator you could sell or something, but it doesn't make sense when applied to salaries.

EDIT: It's actually a little worse than this, you can only amortize 10% on the first year

The 2017 law changed the way software development expenses are counted for tax purposes. 2023 taxes are the first taxes this rule affects.

Details:

https://www.onlycfo.io/p/new-tax-rule-is-terrible-for-softwa...

I mean you might considered a loaded gun to be a gun with bullets in it but by most laws if you hold the bullets in the left hand and the gun in the right hand that's a loaded gun. The law needent be consistent with common understanding.

So, in lets say 2023 your business brings in $1.2M of revenue from a pure-software product. Your net cashflow is $0.2M because you paid $1M to the dev team. Come tax time you have to report a revenue of $1.2M and the maximum allowed expenses are $0.2M so you have to pay taxes on that $1M of profit.

The reason the maximum allow expenses are $0.2M is because Software is considered R&D now so the expenses towards it (the $1M in salary) _must_ be amortized over 5 years. So if next year you also had $1.2M of revenue and $1M of salaries you'd be paying profit on $1.2 - 2 * ($0.2M) since there's two years of salaries be amortized now.

Well that’s stupid. Shouldn’t eng salaries be part of opex?

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