`Section 174` Turns Profitable Software Shops Into Tax-Bill Traps

Software dev costs now get amortized over 5 years, not deducted upfront. A bootstrapped SaaS can owe tax on paper profits while having almost no cash left, so US founders need larger tax buffers now.

[ KEY POINTS ]

The example is brutal: $100k revenue and $90k spent on software looks like $10k profit in cash, but roughly $91k for tax purposes.
Year-one treatment is the killer because only about 10% of software R&E is deducted upfront, pulling future deductions into a long wait.
This shifts the bottleneck from profitability to cash planning; a lean company may need 30%+ reserves against dev spend just to cover taxes.
The pain is strongest for bootstrapped SaaS with no outside capital, which creates room for products focused on tax forecasting and Section 174 bookkeeping.

Originalnews.ycombinator.com/item?id=34627712Read original →

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