[davidgay]

This description is misleading (as many of them seem to be), because you're only describing the first year.

After 5 years of constant expenses, the deductions match the costs. If expenses diminish, deductions exceed costs.

-> this is bad (in the short term) for companies that are growing.

[eslaught]

Or any company in its first 5 years of operation. (Or any company, period, within the first 5 years of the law being introduced.)

It takes 5 years to fill the pipeline, so even if the steady state would be fine, getting to that state might be impossible.

[PaulDavisThe1st]

> Or any company in its first 5 years of operation.

No! Any company (with software development expenses) for the first 5 years after Sec 174 went into effect!

[digitaltrees]

Most startups won’t make it five years especially if they have to raise or borrow money to pay taxes on phantom profit.

There is no rational basis for this tax change it was a vindictive attack on blue states in the first Trump admin and an attack on California and SV in particular along with the SALT tax changes.

[andrewlgood]

For startups that don’t make it five years the issue is moot. Expensing the software developers compensation in year 1 rather than over years 1-5 simply creates a larger taxable loss which creates a Net Operating Loss on the balance sheet which could be used in a future, profitable year. As NOLs can expire and have rules regarding how quickly they can be used and whether they can be sold, capitalizing the R&D could be a better answer for some firms.

[hn_acc1]

This. They hate CA and will do anything to try to make them look bad because we call out their BS. See Los Angeles right now as an example.

[dsizzle]

It's also bad because of the time value of money (deductions in the future are worth less than deductions now).

But I agree that much of the outrage seems due to a confusion that 80% of the deduction is lost completely (vs deferred).