[MattRix]

So this year if I spend $150k on foreign research (which includes ANY software development), and then I also earn $150k in revenue: despite me having $0 in the bank, I will only be able to deduct 1/15 of that, or $10k. In other words, I’ll be taxed as if I made $140k of profit, despite me not having any actual money left over.

You can see how if this was 5 years, then I could deduct 1/5 and I would be taxed on $120k profit, which is still bad, but not nearly as bad.

[pcthrowaway]

I don't think it will stop foreign hiring for R&D, since the cost differential is often greater than the tax obligation would be.

E.g. if you pay $150K for local research, you expense $15K (10%) the first year (and 30K the subsequent year). You pay taxes on $135K of 'profit'. Let's say that's $45K (I have no idea what's realistic here.

Alternately you pay $130K for a dev from Canada, expense $4,333 (1/30) the first year, and pay tax on the remaining 'profit' of $125,666. Even after admin costs you're coming out ahead

[osigurdson]

I don't think many startups are thinking 15 years out. 15 months maybe.

[Uw7yTcf36gTc]

I thought employee wages were always deducted. Is that not the case ?

[PaulDavisThe1st]

Under the new section 174, software developer salaries are no longer expensable.

[patmcc]

Just as an aside - as a general accounting principle, no, wages are not always deducted.

The easy example is a car company, like Ford. If they buy a car factory, that is a capital asset, and the cost needs to be amortized over x years. If they decide to instead BUILD a car factory...they still end up with a capital asset, and the costs (including wages) need to be amortized over x years.

In most cases this is what companies want - they'll have revenues over x years and matching costs over x years is generally better for everyone.