How Section 174 is Impacting Software Development Agencies 50% Of Custom Software Agencies Will Shut Down In 2024 I wanted to share some thoughts about the recent changes to Section 174 of the US tax code and how it’s impacting our industry. Key Impacts: Increased Tax Burden: Companies now need to amortize R&D expenses over 5 years domestically and 15 years internationally. This shift has led to: Stat: A significant increase in immediate taxable income for many firms, affecting cash flow. Effect: Reduced budgets for outsourcing, directly impacting our project pipelines. Cost Sensitivity: Stat: Immediate tax liabilities can increase by 20-30%. Effect: Clients are seeking more cost-effective solutions, putting pressure on us to offer competitive rates without sacrificing quality. Shift in R&D Focus: Effect: Companies may prioritize essential projects over innovative R&D, changing the type of work outsourced to us. Challenges: Delayed Payments: Financial strain on clients might lead to longer payment cycles. Competitive Pricing Pressure: Increased need to demonstrate value and cost-efficiency. We've all noticed the increasing scarcity of clients in the outsourcing industry. However, the full impact of these changes hasn't been felt evenly across all sectors. The real hit is expected to take place starting Q4 this year. Understanding and preparing for these shifts is crucial for staying in business.
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