I can see why it would affect startups not making a profit but why would it dram...

testrun · 2025-06-07T13:38:19 1749303499

Because they are profitable. So the cost is deductible over 5 years, instead of one year.

A very simple example:

Revenue: $ 1 000 All other cost except software: $ 500 Software cost: $ 100

Net profit (if software is allowed as opex): $400

Tax on $400 (@30%): $120

Net profit after tax: $280

However, if it is capex(amortized over 5 years):

Revenue: $ 1 000 Other cost (except software): $500 Software cost: $ 100

Net profit before tax: $ 400

Important: But now for tax purposes you can only deduct $20 this year as a cost ($100 amortized over 5 years)

So now you have to add back $80 to net profit for tax purposes: $480

Tax (@30%): $ 144

Net profit after tax: $400 - $144 = $256

So the difference is $280 - $256 = $24

Just a few notes:

1. I assume tax rate at 30%, it can be something else, principle stay the same

2. That all other expenses are tax deductible

jere · 2025-06-07T14:10:16 1749305416

There's a difference of $24 but I have $1200 in cash reserves. And I make up the difference later. Oh no! Guess I have to lay off 10% of my employees now.