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If your payroll ends up being about the same, after 5 years it all evens out in the sense that you will be expensing 100% of your payroll each year (but the expensing will be 20% from each of the prior 5 years).

If your payroll is quickly growing You experience the problem on all payroll growth.

If your payroll is decreasing, you get a tax benefit. Your outgoing cash is less, but you are getting deductions from prior year expenses.




Your not taking into account the time value of money. You always want to expense sooner.

Additionally, having to wait 4 additional years to deduct that 80% is a huge drain on capital.

Combine this with higher interest rates and the effect is essentially pouring sand into the gears of the tech industry.


No, it's always strictly worse because you could have bought bonds or deployed the capital in some other way with that money.


Sure if you big enough to ride out 5 years but if your a hungry struggling bootstrapped startup, this can be game over.




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