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PaperclipPerfector  2mo ago (text post)   28507 thread views

Culture War Roundup for the week of September 2, 2024

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That's when the tax change came into effect.

The market tanked because there was an insane VC bubble that deployed trillions of dollars of QE money into unprofitable software companies. The federal reserve (and every other central bank) directly subsidized software jobs for 12 years and then it stopped.

That's simplistic. Yes, the techo ecosystem was largely a money incinerator with even the biggest companies (e.g. Uber) burning billions a year. But they could do that because they weren't taxed on those losses. For a personal example (I disbanded a company because of this), 17 million in, 22 million out = no tax. 25 million in, 28 million out = 33.5 million out (5.5 million in taxes, some coming back along 5 or 15 years (as interest free loans to the government)) We went from (hopefully) burning 3 million to 8.5 million, almost triple projected costs (and backwards from 5.)

This came into effect in 2022 before the first interest hike in March. (The equity correction started at new years, coincidence but not related.)

The math doesn’t really math. These companies that had huge losses would have NOLs. Granted, the post 17 NOL limited to 80% of operating income. But that would mean at most 20% of the income subject to FIT so or an ETR of around 4%.

Really the change to 174 really would only impact a company that has only R&D expenses but didn’t have material historic losses.

If you're right, I should murder my accountant.

Your particular facts may vary (eg perhaps you were in a pass through and already used prior year loss on other income; you historically never had large losses). But as for an industry wide problem, I’ve looked at a large amount of tech start ups from a tax perspective and while there is a cash drag due to Section 174 changes it isn’t massive due to the historic losses. The bigger issue often is the BEAT issue / offshore R&D.

I’m not disputing that these tax changes may have made a difference, your example is pretty clear. But at the same time from a finance perspective it also seems like what’s happening with software jobs is an exaggerated version of what’s happening in other industries that relied heavily on low rates and easy money, just in a more exaggerated way because tech benefited more than anyone.

See my point. Poster is ignoring NOLs. If the poster is in the weird situation where it doesn’t have big historic losses and is basically cash flow neutral, then the R&D is a timing difference and should be able to be financed.

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