> it classifies all software development as R&D by definition
We may need to argue about the word "development", but in any case, do you have a reference for that?
https://www.thomsonreuters.com/en-us/posts/tax-and-accountin...
"In the United States, to help spawn innovation as part of the Economic Recovery and Tax Act of 1981, the Research & Experimentation Tax Credit was introduced. Although it was initially supposed to last three years as a specific incentive to encourage companies to invest in R&D, Congress recognized its value in helping businesses create more products and services.
However, it was quickly realized that this tax code made calculations for R&D complicated, especially for small businesses, which led the government to create other iterations of tax codes in order to help clarify the situation. However, not until 2017 and the enactment of Section 174 of the TCJA has there been such a comprehensive change to R&D accounting.
Indeed, before the TCJA’s enactment, businesses deducted the total amount of R&D expenditures as an expense in the taxable year. Beginning in 2022, all costs related to R&D must now be amortized over five years for US-based companies or 15 years for non-US companies."
I'm struggling to understand why we think R&D expenditure - including software development - should not be amortised?
People think R&D expenditure shouldn't be amoritized because it hurts startups.
For example, if you're a first-year startup and you make a software product with $1 million in revenue but pay $900,000 in software dev salaries, and the tax rate is 25%, without amoritization you pay (1,000,000-900,000)*0.25 = $25,000 in tax and make a profit, but with 5-year amoritization you pay (1,000,000-900,000/5)*0.25 = $205,000 in tax and take a loss.
But since established companies aren't affected as much, they are advantaged by the amoritization rule.
> People think R&D expenditure shouldn't be amoritized because it hurts startups
(Not trying to be deliberately obtuse but) which people "think this"? Startups and their investors, obviously, but who else?
If world+dog has to amortize their R&D expenditure, why should startups be exempt, essentially "because software dev salaries"?
> But since established companies aren't affected as much, they are advantaged by the amoritization rule.
Q: Why should startups get a specific tax carve-out for "R&D"?