[calderwoodra]

I'm not an accountant, but as I understand it, you don't pay taxes on profits, but on revenue.

So previously, some 20% of all revenue would be owned as corporate income tax, and startups would deduct it all as they're spending much more on R&D than they owe in corporate income tax. But with this tax change, the deduction would be much lower (80% lower IIUC).

[testrun]

No, you pay taxes on profits. What this does is reduce your upfront deduction.

[epr]

Yes, but the main thing here is that ALL software development is now "profit" in the short term. In theory you've developed a capital good that benefits you over time, hence the amortization.

Simplified 2021 example before 174:

    100k Revenue
    100k Software Dev Costs
    No profit or tax

Simplified 2022 example after 174:

    100k Revenue
    100k Software Dev Costs
    90k "profit"
    18.9k taxes

Above example is year one of suddenly having these taxes, because if your software costs are the same or lower over time it gets easier. It's just extremely painful for smaller and especially fast growing companies like startups without a lot of cash, especially when interest rates are so high.

Accountants: If I am wrong about the above, please correct me

[testrun]

The profit is 80k, not 90k, but the principle is correct. This will affect cash flow.

[akoboldfrying]

> you don't pay taxes on profits, but on revenue.

That can't be right. It definitely isn't in my country.

If own a car dealership, and I sell a car for $50,000 that I bought from the manufacturer for $40,000, surely I would pay tax on the $10,000 profit? The tax on the the full $50,000 revenue might exceed my profit!

[billy99k]

Welcome to the Democrat version of taxes. In Michigan, restaurant owners had to pay a tax on revenue and not profit around 2008 or so.

lots of retaurants went out of business overnight.

[int_19h]

When taxes are paid on revenue rather than profits, the rate is obviously much lower, so that it would add up to roughly the same thing.

However, there are many benefits overall. For one, it completely kills off the various convoluted schemes to avoid classifying something that is obviously a profit as such (by shuffling things around subsidiaries etc, for example). See also: Hollywood accounting.

[hollerith]

Sales tax (which most US states collect) specifically is a tax on revenue, but it is the exception.

[mrweasel]

If companies paid tax on revenue the US budget would be perfectly fine.

[nayuki]

If companies paid tax on revenue, then there would be a tremendous incentive toward https://en.wikipedia.org/wiki/Vertical_integration , because you wouldn't be allowed to deduct the expenses paid to your suppliers.

[rbultje]

Large companies always find a way to not pay taxes. It's the little guys that end up paying (a lot!) more, to the extend that it cripples and kills them. But transformative innovation happens with the little guys. As a result, this tax change cements monopolies for megacorps. They will be fine and still pay nothing.

[datavirtue]

The little guy always pays all taxes. Corporate tax is just a way to palatably shift tax burden to the low and middle classes and away from the owner class. It is pure double speak.

[jazzypants]

Then, why do rich people lobby so hard against any attempt to raise their taxes?

This is reductive and frankly stupid.

[cyberax]

Yeah. Let's bankrupt grocery stores that operate with margins measured in single percents. If that.

[speakfreely]

I am so interested in what business you work in that you would think this could be true.