[badpun]

I'm not an accountant, but to me it looks like the IRS was operating at an assumption that the software engineers write is not immediately consumed, but rather has on average 5 years amortization period (meaning, it's producing value for 5 years, on average).

[everforward]

5 years is the shortest, 15 is the longest. Their assumption is that 5 years is the minimum time that it provides value.

I don't think there's any real logic to it, it's just a way to balance the tax budget.

For 1, presuming that all software engineering is "research or experimental" is faulty. The vast majority of software engineers are implementing known things, and the "experimental" status reflects its reliability. Most "experimental" software isn't really doing experiments to answer questions, it's just checking whether an approach works correctly. I don't think anyone could honestly call writing an Okta integration for a SaaS app "experimental". You know that it will work ahead of time, you just aren't sure if your pass implements it correctly.

For 2, this would imply insane things if applied to other fields. What is the correct period to amortize a bridge engineer's salary over? 50 years? 100? We still have some Roman bridges around, maybe we need to look in the thousands of years. Patents are good for 20 years, so any salaries that lead to a patent clearly need to be 20 year amortization. Copyright is life + 70 years, so graphical designer salaries should be amortized over at least 100 years.

I don't think there's any real logic here, it's just a way to balance the tax budget.

[dathinab]

seems reasonable iff you have a tax system where this deductability is based on the product employees produce which seems strange to be but might be normal

if I understand it correctly it means the cost of this year would be written of over 5 year each year 20%, but if you keep your employees it means in the second year you have 20% write off from that year and 20% of the previous years and so one, so 5 years in still 100% write off every year

I wonder if that would motivate companies to have a more constant number of employees or more precise a similar income bill every year.

Through it would definitely mean if you had considered layoffs this year is the year to go.

[ethbr1]

I am not an accountant, but there wouldn't be a requirement to keep the employees.

If you spent $100M on developer salaries in FY2022, you'd create an amortization for that over the next 5 years.

And then in FY2023... even if you had fired your entire software department... you'd still get to claim that year's portion of that previously created amortization.

[hodgesrm]

That's correct as I understand the tax law. The credit carries over because it's depreciating the capital investment. Net operating losses (NOLs) work in a similar fashion. You get them as a credit in later tax years.

IANAL but have filed corporate taxes many times.

[thinkerswell]

Yes because normally, without this absurd law, you’d just deduct employee salaries from your taxable income.

[dathinab]

yes, I didn't try to say there is an requirement to keep them the writeoffs are base on what they are assumed to have produced not them being there so they would go one

but when keeping a job position (not necessary the same person tho) through overlapping writeoffs it will lead to a consistent 100% writeoff

not doing so can lead to spkies of little writeoff when increasing company size and the opposite when shrinking it. This would make new hires on a limited budged harder and in turn should motivate more long term planing when it comes to head count and that might lead to less head count fluctuations maybe

[bruce511]

Yep, it incentivizes getting rid of software staff as soon as you can after they complete the work. It makes downsizing especially profitable in the short term.

[jacobyoder]

No more than 10% in the first year is deductible.