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If they hire 20 devs in their first year paying $5m in salaries, only $1m or $500k (if the mid-year convention applies) would count as a business expense in that first year.

If their revenue was $2m, that would leave them with $1m (or $1.5m) of taxable profits unless that was eaten by other costs.

It doesn't have to be a problem, but if revenue grows fast and they go on another hiring spree in the following year then it could become a problem.

That said, if revenue grows so fast, it seems likely that they would have huge marketing and sales costs that could be expensed immediately. So maybe this isn't really a problem for many startups. I'm not sure.






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