10 min read


More US tech layoffs are coming or why abroad software vendors are a way out for tech startups: nitty-gritty of Section 174


2023 tax bills came as a shock for many US tech startups – the numbers appeared to be too unexpectedly high, for some businesses even not affordable. As frustration about new tax changes is growing, the US business community believe that these changes might make the country a much less competitive place to start a tech startup and bring an end to most of the bootstrapped companies.

So, let’s have a look at what all the fuss is about and what businesses can do right now.

Let’s get detailed: how the new tax policy is threatening US tech scene 

Behind all these frustrations are the changes (which, spoiler alert, should have never been passed) to Section 174 of the US tax law. They kicked out few years ago and changed one crucial thing for US businesses – from now on, all R&D costs including labor for software development cannot be expensed, but need to be capitalized and amortized over 5 years. In case, you have engineers from other countries on your team – amortization of software development costs from abroad should performed over 15 years.   

Simply saying, now US tech startups will have to pay taxes on every software engineer hired. It becomes even worse when we look at actual numbers and examples.

So, let’s discuss the example provided by Pragmatic Engineer: