[count]

The CapEx -> OpEx push is also heavily tax based. I can write off (generally) 100% of an OpEx expense today (or, as I spend the money). CapEx expenses become Assets, which are tracked and taxed, and the business doesn't get to write off that spend immediately - it turns into a 'depreciation' write off, spread over the useful life of the item (sometimes 5, 10, or more years). Real estate, vehicles, large equipment, etc. is generally all done this way - a CapEx gets you an asset or property, which is then taxed and depreciated. Software licenses, insurance and other things can also be done this way (CapEx), depending on the terms and your accounting standards.

[dakna]

It has come up several times now on HN, but just as a reminder: With the changes to IRC Section 174, all software development expenses must be capitalized now. This even includes all expenses connected to software development.

https://www.eisneramper.com/insights/tax/impact-174-software...

[lotsofpulp]

> CapEx expenses become Assets, which are tracked and taxed,

> Real estate, vehicles, large equipment, etc. is generally all done this way - a CapEx gets you an asset or property, which is then taxed and depreciated.

What tax(es) are you referring to? Property taxes?

[PeterisP]

The general income taxes. Opex is close to cash flow, capex is not.

For a simplified example, let's assume that this year you bring in $100 of cash and spend $50 of it on opex and $50 of it on capex.

In this case, your revenue this year is $100, but your expenses this year are all $50 of opex plus some percentage (depends on over how many years you capitalize the investment, as set by your policies but limited by tax law) of capex, if it's a 5-year depreciation then it would be $10 of those opex $50, so for your $100 of outgoing cash $60 are expenses this year and $40 is treated as accumulated assets for future. So the accounting says that you have $40 of profit this year - and, crucially, it could have been as low as $0 or as high as $80 (this year! The total profit doesn't change, but it can get moved around in time to a different year) if your accountants can make the case that those activities were 100% opex or 100% capex.

And while there are various reasons why the company might prefer these numbers to look higher or lower, the main practical impacts are twofold - one is taxes, where saying that some expense is opex means you pay less taxes today, deferring them for a few years and improving your cash flow, but the other is stock market, where saying that some expense is capex means that your quarterly profit is higher and thus it helps your stock price and any employee benefits linked to stock price.

And because of that your management often will have KPIs with a very strong motivation to push things towards opex or capex depending on the company.

[count]

In some cases (e.g. a building or expensive equipment purchase, probably yes, property taxes in most jurisdictions, at least in the US). The depreciation is deducted from income for income taxes over time, rather than all at time of purchase as an opex expense is. This implies a higher income tax bill 'now', with a smaller deduction smeared over time.

[lotsofpulp]

> This implies a higher income tax bill 'now', with a smaller deduction smeared over time.

I would not characterize a lower deduction for a business expense as taxing something. I would have assumed it meant a buyer has to pay an additional tax as a result of purchasing something.

[count]

A business pays no tax on an OpEx. The specific tax on a CapEx depends on the jurisdiction.