I don’t get the big hoopla. Here in Germany I’m opting to turn development costs into assets (I simplify a bit). I need assets on the balance sheet, otherwise we’re over-indebted. As long as the development costs are much higher than income (I.e. as long as you’re not profitable), then it shouldn’t matter. And once you are profitable, you pay some more corporate taxes, but aren’t they kind of not too high in the us anyway?
the big hoopla is this: you're a newish startup. You have $300k/yr revenue and $$270k/yr expenses of which $250k is paying your programmers.
prior to this rule change, what you pay your programmers is just a deductible expense, so you owe taxes (in this very simplified example with no other expenses etc. etc.) on just $50k.
after the rule change, you can deduct only $50k of the labor cost (in this year), so now you owe tax on $250k.
there is a very good chance you do not have the cash available to make this payment.
of course, after 5 years, things all balance out and are effectively "back to normal". but you have to get through those 5 years first.
How does this work, in your first year, to have 300K revenue on 270K development cost. It sounds like some very specific boot strapping case, and even then after 70K deductions its 230K profit, so like 50K in taxes on 30K profit. Sure it’s annoying, but it doesnt sound like total doom. Its more likely youll have 250K programmer expense in the first year, 100K in revenue, need 200K in outside investment, and pay very little taxes. After a couple of years it evens out anyway.
Consider some sort of logistics company. They might pay 250K for their hardware (e.g. vehicles), 50K in expenses, get 300K in revenue. Theyll be taxed the same as the startup building up their IT assets.
The logistics company example is not really relevant. The critical point about the rule change is the fact that all software related expenses, including salaries or contract labor costs, must now be amortized over 5 or 15 years. What was previously deductible no longer is, and this changes the cash flow situation dramatically for a software-intensive business, for 5 years.
Sure, for heavily capitalized startups that are losing money, the rule change is not an issue. But for companies that manage to get to profitable status soon, even if it is only a small profit, the rule change can be devastating. A quick search for past HN articles about this will provide lots of example links to follow.
