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Comment by matsemann | Hacker News Reader

I don't get it. How is this not just $500k salary? How is it R&D?

The idea is: You can hire a R&D team for one year, fire the entire R&D team and still benefits from their works in the next few years.

In terms of tax, should we average out these expense over the years?

These can have huge difference because how complex our tax and accounting rules are.

Further, R&D is at best a bet, as any of us who has ran a technology business well know. It’s not at all clear one will be able to take the research to market and monetize the R&D investment. Doing that is called founding a successful company.

And if the investment pays off, so that the R&D creates revenue in future years after it's already been paid for, then it will result in actual taxable profit in those future years.

It seems like the IRS is trying to speculatively tax unrealized future profits here, and that's pretty unconscionable.

Excellent point.

I would clarify here that it’s Congress that is doing the taxing. IRS is just implementing what they asked them to.

This is exactly what they are doing. If this scheme sticks, it will reduce R&D investment. It certainly disincentivizes me from investing in such efforts.

We once started a revolution over unfair taxation. I sadly think the same will be necessary to fix the status quo, as system has rotted past the point of meaningful reform.

Allowing the federal government to implement an income tax was one of the most destructive changes to the constitution we've ever made, and it's only gotten worse and worse over the decades. What was originally just supposed to be another tool to generate revenue has become an end in itself at best, an a lever to manipulate society at worst.

On top of that, the necessity of shoehorning everyone's economic activity into prescriptive taxonomies in order to implement this taxation has drastically diminished innovation on the margin, and has created unintended consequences that significantly distort market incentives and diminish our ability to adapt to change, with the situation we're discussing here being a prime example.

I'm worried that you're right; that it's beyond repair, and that we may have to live through a systemic collapse before things can get better.

It is salary, but it goes not into operational expense (that applies directly creating the things you sell right away) but into building a capital asset that helps you generate future revenue and can depreciate over a number of years.

It's just as if you pay the salaries of some construction workers to build you a new factory - those salaries are part of the capital investment for creating that factory (and depreciated as that asset), not your operating expenses.

under the new regs, software work is required to be classified as R&D.

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