[brianwawok]

This isn’t like a loan where the longer the term the smaller the payments. It’s the reverse.

You essentially pay taxes now on income, and can’t deduct costs for 5 or 15 years. So it’s kind of like pre-paying taxes and not getting the money back for 5/15 years. Say that you need to go borrow cash to cover the shortfall. Is it cheaper to borrow money for 5 or 15 years?

[phkahler]

Hah I'm still trying to understand how software developer pay should be a deduction at all.

[alwa]

As far as I understand it, it’s normal to deduct most all kinds of payroll as an operating expense, and historically that’s included software developers too. The way it was explained to me, the tax man gets his bite when the people receiving the paychecks pay their own income taxes.

The recent changes mean you can still do that for most staff EXCEPT developers, even if the devs are doing operational work instead of work that feels more conventionally like R&D. So you have to come up with a bundle of cash now to pay tax on most of the developers’ salaries, even though they’ll give it back to you over 5-15 years.

Essentially you making a free loan to the government for a decade or whatever, except the money’s probably not free to you.

Of course I can think of situations where the development effort really was more R&D than operational, and the revenue stream matched: the first few years operated at a loss already, and the deductions might have more been useful in 5 years when the revenues were flowing in from a mature product. But I think they might have ways to carry forward losses to future tax years or something to deal with situations like that?

[PaulDavisThe1st]

It's like any payment to any contractor.

If my business makes 400k/year, but I pay a contractor 100k during that year, my effective income is reduced by 100k.

[brianwawok]

So if you run a McDonalds. Your cash flows is money coming in for finished burgers. Your expenses are workers salaries and to buy meat. Let's say your very simple business summary is:

* Total Revenue: $1,000,000

* Cost of food: -$200,000

* Employee Salary: -$600,000

* (potential profit): $200,000

Assuming you can deduct the cost of food and employee salary to sling your burgers.. you make a 200k profit, and pay taxes on 200k.

But now let's say you can't deduct employee salary. You now pay taxes on $800,000 of income despite only having $200,000 of income. Depending on tax rates etc. you might end up with $0 in your pocket, despite having a successful business.

Now replace McDonalds with bootstrapped startup, food cost with AWS bill, and keep employee cost. This is the real situation many small SaaS or other software companies are currently in.

[osigurdson]

>> Hah I'm still trying to understand how software developer pay should be a deduction at all

Because it is an expense maybe?