#0001
`Section 174` Turns Profitable Software Shops Into Tax-Bill Traps
60radar
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.
- 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.
Source: news.ycombinator.com/item?id=34627712Read original →