Technology Blog

Armanino’s Technology Blog informs technology and software CFOs and executives of the latest industry trends, rule changes and best practices. Our professionals bring you their insights and advice from an accounting and organization perspective to help your company reach its goals.

Wednesday, October 26, 2016

The Art of the Deduction

Posted by Nick Gibbons

Earlier this month, the New York Times reported that Donald Trump had a $916 million net operating loss on his 1995 tax returns, which could have legally allowed him to offset his federal income taxes for nearly 20 years. This was possible because the tax code contains some big advantages for commercial real estate developers.

Although the tax code may not be quite as generous for technology companies as it is for Donald, it does provide them some significant breaks. Below are just three of the deductions tech firms often qualify for.

R&D Credit – Made permanent last year via the PATH Act, the IRC Section 41 research credit provides tremendous benefit to companies for their qualified research expenditures (QREs). Examples of QREs include salaries for engineers, lab supplies and contract research.

Bonus Depreciation – Also thanks to the PATH Act, IRC Section 168(k) was extended through 2019. It allows businesses of all sizes to depreciate at 50% the cost of equipment acquired and put in service during 2015, 2016 and 2017. The bonus depreciation will then phase down to 40% in 2018 and 30% in 2019.

Stock Options – Probably the most significant deduction available to tech companies (at least when their value is increasing) is the one associated with stock options. Specifically, awards doled out as non-qualified stock options (NQSOs) allow the company to deduct the difference between the grant and exercise prices. Depending on the increase in value, this can be enormous ― making Trump’s deduction look almost small by comparison. For example, between 2010 and 2012, Apple saved an estimated $3.2 billion in taxes thanks to this deduction.

These are just a few of the potential advantages in the ever-evolving tax code. To learn more about the deductions your company may qualify for, talk to one of our tax experts.

Nick is a Senior Tax Manager with over fourteen years of public and private accounting experience with significant expertise in income tax accounting (ASC 740/FAS 109). He serves numerous industries, including technology, biotech and entertainment. Before coming to Armanino, Nick worked at PricewaterhouseCoopers, Silver Spring Networks, and various other public accounting firms. Nick graduated from Montana State University with a Bachelor of Science in Business and a Master of Professional Accountancy. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the California Society of CPAs.


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