Since this is already hanging around for an entire tax year a lot of companies are 1/5th into that pain. If this does not get changed in the next few months it would not surprise me if this becomes the new norm. Which would also be quite interesting to see how that would play out. Some companies apparently have already been amortizing salaries for a while in anticipation of this (eg: Google). Given that this also greatly punishes outsourcing I would not be surprised if at least that aspect will remain even if some of the rest will be rolled back.
> Some companies apparently have already been amortizing salaries for a while in anticipation of this (eg: Google)
> Given that this also greatly punishes outsourcing
Anyone help me understand these more? My understanding was that instead of deducting the costs of paying software devs the year it happened, it will be spread over 5 years. Which leads to a bigger tax bill now, and benefits bigger companies with deeper pockets as opposed to smaller businesses which have to raise moneny to pay taxes (or lower costs, potentially lower hiring). This should also push companies towards outsourcing, since not all places have similar laws? Is my understanding wrong?
This applies to all foreign R&D, not just where it is much cheaper… and unless it is many times less expensive, it will not be worth it. Only being able to deduct 1/15th per year is absurd.
If you're not yet profitable it doesn't matter, so you can do this accounting and once you are profitable (in five years) you'll be caught up
What the (possibly temporary) temporary law probably actually does is decrease the incentive to become profitable for the next couple of years (assuming your business is strong and you can raise another round)
Is it true that they are 1/5th into the pain? What about every new hire? That's the part I don't understand. It seems to discourage companies from increasing their headcount. Also, what happens when an employee leaves after 2 years? The company paid 2 years of salary but expensed only 35% of year 1 and 15% of year 2.
Update: Now thinking about it, it doesn't matter if an employee leaves, since the company will expense their salary portions that they haven't expensed yet in their future tax bills.
You already have such amortizations for a lot of things. In some cases this even gives you possibilities to improve your tax burden. It just means that you cannot deduct it all in one year. If you downsize a company to zero employees you still get to subtract salaries for a few more years against your profits.
It will set different incentives wiring wise and I’m not convinced they are good ones, but from this rule some people will benefit so they might fight the rollback.
Would this cause more intentional hiring? In other words, since everyone's already 1/5th into it this means that anyone who was hired in the last year since all those layoffs was hired intentionally with more of an expectation of betting on them for the longer term.
