[enginaar]

i'm in a similar situation building software and my understanding is while i cannot write off my expenses 100% because i'm building an asset, if you're operating business as usual, maintaining existing software/service then it's 100% expense.

[rietta]

My wife and I am getting a refund this year. Getting beat up in the business by inflation, all costs going up, and cutting income in half is not a great tax strategy.

It is going to make me push tougher time code tracking onto my developers. Fixing a bug is different than feature work is different than legit R&D that might qualify for the actual R&D tax credit. As if software devs love doing time sheets (not!) :-/

[enginaar]

how subjective is it whether feature building qualifies as R&D?

[rietta]

I am not an expert, but there are rules. If it fits the definition of doing or managing the qualified work and "no one is paying for it" than it could count. This is for the R&D tax credit,see https://www.irs.gov/forms-pubs/about-form-6765.

Here is a copy and paste from a e-mail from our CPA:

To qualify for the credit, you have to have what’s called “Qualified Research”. Qualifying research typically meet’s the following criteria ...

1. Was the research related to the development or improvement of the functionality, quality, reliability or performance of a business component (product, process, software, technique, formula or invention)? 2. Was the development technological in nature? 3. Was there technological uncertainty about either the capability or method of developing the business component or its appropriate design? 4. Was the developmental process experimental in nature?

For wages to qualify for the credit, they have to be for qualifying research activities such as –

1. Conducting or executing the qualified research (e.g., testing a manufacturing prototype) 2. Directly supervising the qualified research (e.g., managing a team of software developers) 3. Directly supporting qualified research (e.g., organizing test results on formulation trials)

[robocat]

I know nothing about this topic, But I think your accountant was talking about R&D tax credits, which is a different topic from R&D capitalisation and depreciation. The tax credits might be another reason why companies previously wanted to claim developers salaries as R&D.

The issue here seems to be that software development wages are now supposed to be treated as R&D per https://news.ycombinator.com/item?id=35620164 combined with the fact the IRS wants R&D to be capitalised with a standard depreciation schedule.

Hopefully someone who is an accountant can ELI5 this all, because this topic is mostly basic accountancy. https://news.ycombinator.com/item?id=35614721 explains it a bit, but misses the ELI5 part about what amortisation/depreciation is.

A good example that is about building a thing rather than some software would help. Edit: Best example with good child comments so far: https://news.ycombinator.com/item?id=35615217

[enginaar]

thank you!