In terms of accounting, Companies get taxed on their net profits. i.e Revenue - business expenses - employee wages (salaries, bonuses, commisions) - interest paid on loans - depreciation.
It's baffling because if not all employees are equal now in terms of accounting.
Example:
With flat 21% tax rate for US corporations.
If you made $100k in a year paying $70k for a salesrep, you only get taxed on (100-70) = $30k as net income. You pay tax bill of $6,300. This seems is fair because $30k is what the company has in cash in bank before paying taxes.
If you made $100k in a year and had a $70k dev working for you, get get taxed on (100 - (70/5)) = $86k. Developer salaries have to be claimed as R&D which get ammortized over 5 years. You get taxed $18,060. That is 3x the tax for hiring a developer instead of a salesrep.
Suppose you raised $100k and paid no salary to yourself, but paid all $100k to hire two developers. You have $0 in net income, but still pay (100-(100/5)) * 0.21 = $16,800 in taxes.
That $16,800 is a hole in your pocket. Negative balance. So you either stop hiring developers or be out of business.
So those who are cheering this is a good thing, this will lead to more layoffs. Companies will not pay as high of comp as they used to.
Expect a stream of layoffs across small companies who don't have enough cashflow to survive the amortized tax bill over 5 years. I expect big tech to continue their layoffs since their stock price is closely tied to their net income and they have to show that as always growing.
It's not a good thing for the economy either.
most are getting what they deserve just because they claimed R&D tax credit to install and set the title of a wordpress instance.
just report it as the regular blue collar work it is and not suffer from amortization.
... but for the few 5 startups really doing something innovative, yeah, I'd start to research where to move.
What are the expenses for software R&D that aren't salaries and/or depreciation of equipment?
This is a serious questions, every time this comes up I ask this question and no one can provide examples and I feel like it should be super easy to produce examples.
It's software engineering being taxed exactly how all other forms of engineering R&D has been taxed for decades.
Welcome to the maturity club.
