Software firms across US facing tax bills that threaten survival (cnbc.com)

Article summary

US software firms are facing massive tax bills due to a change in tax law that no longer allows them to fully expense research and development costs in the year they are incurred. This change is causing cash flow problems for many small businesses, forcing them to take out loans or consider staffing reductions. The issue is particularly problematic for startups that rely on software development talent and may not have the funds to absorb the increased tax costs. A bipartisan bill has been introduced to retroactively fix the issue, but its passage is uncertain.

Main themes

• Tax law change
• R&D expenses
• Software development costs
• Cash flow problems
• Startup ecosystem
• Accounting principles
• Government policy
• Small business impact

What commenters say

• The tax change is unfairly punishing small businesses and startups by artificially inflating their profits and causing cash flow problems.
• The change is a rational accounting principle that requires companies to capitalize costs that provide benefits over multiple years.
• The government is pushing back against a common practice of expensing R&D costs to avoid paying taxes, but this may have unintended consequences for the startup ecosystem.
• The law should differentiate between software development in consulting and SaaS product business models, as the benefits and expenses are recognized differently.
• The capitalization of software development costs is equivalent to the capitalization of tangible assets, such as machines, and is a standard accounting practice.
• The tax change may lead to a increase in company failures and layoffs, as small businesses may not be able to absorb the increased tax costs.
• The government's decision to change the tax law was likely a bargaining chip in larger political negotiations, rather than a deliberate attempt to harm small businesses.