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jkelleyrtpHNSource author
Business & incomeExperience excerpt · English

Let's just say I started a company last year

… Let's just say I started a company last year. I sell software and made $100k revenue this year. I hired someone for $100k to help build that software. I have zero dollars left in the bank at the end of the year. According to 174 I can only amortize that $100k over 5 years, not all at once. So now I have to pay taxes on $80k profit. I have no money in my bank account, how can I pay any taxes at all? It's not like I'm going to fire my engineer, he does feature and maintenance work. Let's say that next year my business stays the same. 100k in 100k out. I still have no money in the bank and have to pay taxes on $80k profit, again? What?? Every little startup in Silicon Valley makes software, spends a lot on salaries, and is barely breakeven. How... am I expected to run a business like this?

Original discussionThousands of small businesses are struggling because of R&D amortization341 source comments · at import
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FL
flutasHN

Not to go all achstuushually on you, but it's even worse. You can only deduct 10% the first year. Every year after is 20%, then year 6 is a "make up" of the last 10%. So year 1 would be $90k now not $80k. > Because of the tax code’s accounting conventions, domestic firms ultimately have to deduct 10 percent of costs in year one, 20 percent of costs each year in years two through five, and the remaining 10 percent of costs in year six. [0]: https://taxfoundation.org/blog/rd-amortization-impact/

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WM
wmfHN

You're understanding it correctly. The "answer" is that you either take VC investment, borrow money to pay the taxes (in this economy??), or go out of business.

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CO
codingclawsHN

Wait, isn't it an incomplete example? How much money did you start with? In other words, you had to pay the developer some salary before any revenue came in.

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