Software development companies across the U.S. have been blindsided by massive increases in their tax bills, and many startups are in an existential crisis. Due to the expiration of a crucial tax provision, some companies have seen up to a 400% rise in their taxable income. The exception allowed companies to fully write off the tax year’s research and development (R&D) expenses, and unless Congress can remedy the situation retroactively, many enterprises fear going out of business imminently.
From small startups to venture-backed enterprises, the software industry could experience its equivalent of a bank run, with many scrambling to find solutions before the tax situation gets out of hand. Companies are being forced to either take out massive loans or ask beleaguered investors for extra cash during a gloomy economic period for venture capital firms, while also considering limiting hiring or cutting jobs. And with a debt-ceiling battle raging on Capitol Hill, many founders are afraid the provision will go overlooked or wind up on the cutting room floor.
However, some remain optimistic that legislators will recognize the impending doom and reenact the R&D relief, especially as grassroots efforts by software developers aimed at calling Congress’s attention before it’s too late.