"As far as I understand it, software engineering salaries are no longer fully tax deductible in the year they are paid, instead they can only be depreciated at 20%."
Tiny part of a Trump era tax bill, that went into effect very recently.
Do you think this is what causing these recent layoffs?
For example, developing windows 11 might count as R&D up until it ships. Spending a decade supporting it, doing bug fixes, and patching security holes in the already-shipped product would not count as research or development.
This “the research is done when the product shipped” might work for tangible objects but it does not seem coherent given the way the software lifecycle works.
It might be wise to revisit this; giving companies a tax break when they do security upgrades after release might be a good way to incentivize more secure software.
No, the tech industry has a ~10 year boom/bust cycle. There was a lot of over-hiring during Covid, and now there is a recovery.
(a) In general - In the case of a taxpayer’s specified research or experimental expenditures for any taxable year—
(1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
(2) the taxpayer shall—
(A) charge such expenditures to capital account, and
(B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
This is not just a SW issue and it will kill this country.
It's possible the change is a contributing factor, but I don't think it could be a primary cause, because companies wouldn't have waited this long to react.
On a five-year time frame, section 174 is equivalent to the existing tax code. You have five years of labor expense, and after five years 100% of it is amortized from a cumulative point of view. So the look of it is that the tax code is favoring companies that are established and survive, which doesn’t seem like so bad of a thing. If your start up is operating at a loss and you don’t have the capital to afford taxes while you’re operating at a loss, It’s a harder road to climb. So from an economic stability point of view, it makes sense to me that you would want startup companies to be well funded and for them to have a business model that doesn’t rely on a tax loophole to cannibalize existing aspects of your economy.
The foreign labor deduction Requiring 15 years of amortization versus five years for local labor is an interesting one too. That is a very clear shot at offshoring and I’d guess is the reason this wasn’t proactively revised.
Most of the analysis is “look at my million dollar ARR business and how bad it is now” but without a time component, that’s a disingenuous take.