[sprite]

So if you employ a software developer you can’t expense their salary?

Let’s say I hire a dev for $100k/yr and my product does $100k in revenue which just covers the developer’s salary. I have $0 left in the bank but owe tax on $80k in profit in the first year, is that correct or am I completely misunderstanding?

[FateOfNations]

That is correct. You invested $100k in developing a new product. Even if you fired your developer today, that product will earn you income for years to come. The general principle is that when you make investments (versus pay operating expenses), you can't deduct the cost of the investment up front, you have to deduct it over the "life" of the investment. In the case of developed software, it's "life" is deemed to be 5 or 15 years for tax purposes.

Previously they made an exception for some kinds of R&D (versus other kinds of investments), so that they could be deducted all in the first year, within certain parameters. The TCJA took away that special treatment (to pay for overall tax rate cuts).

[t-writescode]

I desperately want an answer to this, too. I’m trying to start a business right now and I assumed, foolishly, it seems, that I would be able to guesstimate business expenses as (gross income - (hardware costs, api costs, etc) - employee wages) and it doesn’t sound like I’m going to be able to do that at all, and *all* of my math is harmed.