Tweet thread FAQ on Section 174: https://twitter.com/mjwhansen/status/1640696365637419008
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Michele Hansen 0:00
Hey, it's Michelle. And I wanted to give you a little update on what's been going on since Colleen and I decided to go on hiatus a couple of months ago.
It's just me today. And this is going to be unedited, so I apologize in advance. If there's any sound quality issues or whatnot, this is just going to be a kind of, yeah, a rough one take kind of thing. And then I'm also going to add on an episode that I just recorded on Monday with Justin Jackson, that everybody who has a US software business regardless of whether it's a side project or one with employees needs to know about, but we'll get into that later. So as we kind of talked about, Callie and I decided to go on hiatus for a variety of reasons. Coleen mostly because she really wants and needs to be heads down on Hammerstone. Right now, and she has indeed been heads down on it. I don't know if you're listening to the Hammerstone podcast, which she's recording and releasing every so often with her co founder, Aaron. And those are worth listening to. They've got good stuff going on. And, you know, for me, I just had so much going on between podcasts and book and conferences. And then it was also in language school, and I'm still, you know, running geocode do and there's just a lot, a lot going on. And I was just tired, quite frankly. And, you know, thing about recording this podcast was a calling, and I have a nine hour time difference now. And that made recording a bit a bit challenging. especially so in the last couple of months, you know, sort of starting in the fall, because, you know, we bought a farm house here. And so we've been remodeling that house. And so we're actually not living in a house right now. But our headquarters where I record it our house, and so like, it just made everything really complicated in terms of the logistics, because we're recording at 8am Callie's time 5pm For me, and so like, she's just gotten the kids out the door. And it's like, coming down from that stress. And then, you know, schools got now we're trying to get dinner on the table. I'm also like, you know, in a different place, like, physically, and I can't just like, you know, when we started the podcast, I would just kind of go down after bedtime and record at 9pm. And that's not really an option. I kind of tried that a little bit. But I don't know if you've ever stood alone in a field, like nine or 10 o'clock at night. It's pretty creepy, even if it's your own field. And yeah, so so Yeah, cuz it's just like super dark. And so. But that'll be easier, I think once our renovation is done, so who knows, you know, what the future holds and whatnot. But that's kind of where we're at. And I was very much enjoying my, what I called my hibernation of, you know, saying no to podcast appearances, like the ones you've maybe seen for me in the past couple of months. Like those are ones I agreed to in the fall. You know, not doing any conferences, not doing any zoom talks, like no side projects, just doing geocoding or just doing life, which is more than enough to keep me busy. Plus spending time on my health, which is the thing that kind of moved to the bottom of the pile between work side projects, family and Language School for the past year and a half. So I was very much enjoying that.
God, this is sounding more like a rambley voicemail to an old friend than a podcast, but Right, so maybe that's okay. So what pulled me out of my hibernation that I was very much enjoying is this awful thing called the changes to Section 174. And you may have seen me tweeting about this or heard about other podcasts about it. And basically what this is, is it's a change to the US tax code that that took effect for tax year 2022 Which is to say the taxes people are paying right now. that makes it so that software development and other types of what the textbook calls research and experimental activities have to be amortized rather than having the option to expense them. Now, there's a lot of misunderstanding about this, because people hear that and they go, Well, I don't do r&d. So that doesn't impact me. And unfortunately, that is not how the tax code looks at it. Because it specifically enumerates software development as included in this category. And the thing is, is that it's been in that category for like 70 years. And it was just never a problem until they took away the option to expense it. So what this means is, if you spend, you know, let's say, you spent all of last year building a new product, and you spent $1,000, let's say on servers, that's not just like $1,000 off of your taxable income, you can actually only expense 10% of that the first year. So you can only expense $100 of that, and then $200 of it next year. This is a huge problem, because it's artificially inflating everyone's taxable income. And people are seeing tax bills that are like 400 times higher than they otherwise would have paid. This is a huge problem for small software businesses, because so much of our of what we do is software development. So this is not just new products, it's also new features to now we are waiting from full guidance from the IRS because Congress was widely expected to revert this before it took effect. Everybody expected that everybody in DC expected that including the IRS. But the way that experts and big companies are proceeding are as if this is as bad as it seems. And indie founders, like you and I are already getting tax bills that are significantly higher, to the point where people are freezing, hiring, laying off staff, reducing salaries, going without pay themselves, tapping credit cards, tapping lines of credit, doing whatever they can just to pay a tax bill. And I mean, for us, like, you know, we went into this year, and you know, there's a lot of layoffs in tech. And we're like, oh, like maybe this is a good time for us to start thinking about adding another developer, like we know some good people who have been the go recently. And this is just the it's just killed that conversation entirely. I don't even know what our fill is going to be yet. But I just know, I know. It's not going to be good. And the thing about this is there's also a lot of accountants that don't even know that this happened, because the IRS didn't issue for guidance, they issued a warning in January, two accountants telling them that this is happening, but they've never had to define software development. But again, you know, the way that big companies are proceeding and is that it's, it's as bad as it seems. So, and they have been talking to Congress for like four years about this, because for context, it was basically a way that they paid for the 2017 tax cuts was to do this change, but then they never actually intended to make it permanent. So it's kind of like a little magic trick, basically, to make those tax cuts seem affordable. And they they intended to revert that and there's like widespread support for reverting it in Congress. Which just when does that happen? Right. So it's like, broadly bipartisan, they almost repealed it in December, and then it fell apart at the last minute. And so So what's going on now is that we need to fight this, because it's been seen as a big business issue. And that's kind of why it's gotten tangled up in Congress a bit. But this isn't just a big business issue. This is a small business issue. This is an issue for small software businesses. This is an issue for small manufacturers for small biotech companies. But our world of small software, and we are threatened right now, like so i. So, you know that I'm an indie founder, and I wrote a book and have this podcast and blah, blah, blah. And what you probably don't know is that I used to live and work in DC, and still have a lot of friends there. You know, calling in I met living in Arlington, Virginia, which is read on the other side of the Potomac. So I found out about this. I started asking my friends in DC about it. And they were like, Yeah, this is this is a huge problem. And we've been trying to fix it for years. And I was like, well, like my friends might be going out of business because of this. Like we're not hiring somebody because of this like, and they're like, Oh, well, like let's get you in the conversation. So that's what we're doing. So I'm kind of in the weird spot of being a connecting point between the policy worlds that is very eager to have us on board and the indie Founder World. So what's happening is we're sending a coalition letter to Congress, these coalition letters are incredibly effective. I mentioned that small biotechs are impacted a group of 500 small biotechs wrote a coalition letter to Congress explaining, hey, 174 is a problem. Here's how it's impacting us. And a senator mentioned that in a hearing last week, so these are very effective, it's gonna go straight to their offices, straight to the members that support this effort. And also, and it's something that they can use, as they are talking to other members to say, hey, like this is, this is hitting small businesses, they don't have the ability to, you know, loaned a bunch of money for a year for Congress only refund this later, right, because Congress is, you know, there's, there's, as it looks right now, Congress, you know, could revert this in later on in the year. But that this kind of, they're operating under the assumption that companies can basically just like, loan the IRS tons of money for like six months, and then just get it back, which, if you're an indie founder, and your tax bill just went from $75,000 a year to $225,000 a year and you're running a lean operation, that's going to be a huge problem. So this letter, the point of this is, is to tell Congress that this is an urgent crisis that cannot wait, whether that's because it's causing uncertainty for small businesses who haven't heard about this from their accountants yet or don't know what their tax bill is going to be yet, and are simply pulling back. Or because they are already they have already paid us and are already facing the impact. So the coalition letter, if you're a US founder with the US Small Business, SSP, alliance.org, I'm 12 minutes in and I have totally very Delete. I'm go there and sign the letter. The goal is to send a letter before tax day. So the deadline for signing it is April 10. It is March 29. as I record this, and I mentioned that those small biotechs had 500. I've kind of set a goal of 1000. Because I think there are enough of us, I think we can get there, we have to spread the word about this though, because this imperils our entire way of doing business, it will no longer be remotely attainable to be a small, profitable software business. Because if all of the work we do to build new products and add new features to our products, becomes all of a sudden this like taxable phantom profit that we can only expense part of every year. It's just it's not going to work. Like if this had if this had come into being when we were still a side project like I mean, we probably would have ended up paying taxes our first year when we only made like $2,000. Like it's this is a problem. Even if you have a side project, even if you don't have employees, even if you don't take the r&d tax credit, which by the way, likely cannot offset all this anyway. And you have to have extensive record keeping in order to take the r&d tax credit. And it's the other thing about this is like if the time you spend building new products versus working on new features versus fixing bugs, like if fixing bugs is one tax category, and new features and new products are another tax category. Like are we all going to have to be time tracking? Like so many people start in the businesses and part of it, you know, like Colleen is like they're excited to no longer do client work no longer be time tracking, right? I mean, but if like those 15 minutes you spend doing something for a new feature lower or you the UI library you buy or whatever it is, is is taxed differently.
You're gonna have to keep meticulous records. Otherwise, that's tax evasion, and tax fraud. And like, just like the administrative burden of this is going to be massive for small businesses. Plus the just the tax impact, and its worst the first year too, because you only get 10% for 22 and then 20% for the four years after that. So we have to fight this. And I'm pulling out all of my connections for this and they're very receptive to having us working on this. Like because of this effort, like indie founders that you probably recognize from Twitter, have already spoken to Hill staff About this, like, I've gotten them in touch with people. And so we're going to do this letter, we're going to get people in touch with staff. Congress barely knows that small software companies exist. The rest of the economy barely knows this. Software companies exist, right? Like we're a little niche. But we're getting really hit by this. And so if you have a small software business in the US, I need you to sign this letter. And I need you to tell every founder, you know, to sign this letter, and to do so before April 10. The goal is 1000 signatures. I know we can get there. I know there are at least 1000 of us. SSP alliance.org. Go there, sign it. And if you can, like I did a really long tweet thread, like kind of like an FAQ about this. That thread was fact checked by professionals before it went out like that thread was actually a week in the making. It's I mean, it sounds so like, cringe, but like, please retweet. Seriously, just, you know, while you're hunting for enterprise customers on LinkedIn, like, share this, like I have posts up about this, this is an existential threat for our businesses. And seriously, even, like, even if you made $500, On Your Side Project last year, you are probably going to get hit by this. So we all have to work together. To to beat this. And I know we can do it. And so for more on this, I am adding in the episode that I recorded with Justin Jackson a couple days ago on this issue. And yeah, that's all for now. I look forward to going back into hibernating when all of this tax stuff is over with I mean, like we spent the whole fall doing sales taxes and then we're dealing with this whole nightmare about us and Danish taxes. Because LLCs don't exist here and it's a whole hairball. The last thing I want to be doing right now he's talking about taxes. But if we work together, we can fight this. I know we can. I know we can when we can we can we can throw a wrench in these negotiations, get things going. Help Congress understand that this is an urgent crisis for small businesses. Alright, I'm going to close it here. Good chat, SSP alliance dot work. And thanks
Justin Jackson 18:16
Hello, welcome to build your SAS. This is the behind the scenes story of building a web app in 2023. I'm Justin Jackson, the co founder of transistor.fm. And today on the call, I have Michele Hansen, co founder of geocoder. Co. And we're going to be talking about something very exciting, which is section 174. Hi, Michele, how you doing?
Michele Hansen 18:40
Hi, how are ya?
Justin Jackson 18:42
First of all, Michelle. Last I heard from you. You were going into hibernate mode. And the way I understood hibernate mode was you were going to offload some of your side projects, you know, stop recording the podcast for a while. No writing of new books. Nothing extra not doing any public speaking. I'm just going to relax. I'm going to focus on me. I'm going to focus on my family. You're going to focus on geocode do what happened?
Michele Hansen 19:11
Yeah. I want to go back in my cave man. Yeah, section 174 is what happened and I can't wait to go back into hibernate mode.
Justin Jackson 19:24
Okay. Yes, we're in this was kind of I mean, it's not out of left field because it's this legislations been proposed for a while. Maybe for folks who don't understand what section 174 is, could you give a brief description, and maybe then we'll talk about why it matters for small software companies. So what is section 174?
Michele Hansen 19:51
The very high level is that section 174 And specifically, what we're talking about is reverting section 174 He is a part of the US tax code. So we are talking about anyone who has a US business that builds or sell software. And this is the part of the tax code that deals with what is called research and experimental, which is different than r&d. Okay. And basically, for I want to say about 70 years, since this section came into being, software development was considered among this research and experimental or aren't II spending, okay. And then what happened was, and under this section, you had the choice to either take all of those expenses immediately, which is to say, let's say you spent $10,000, last year, building a new products, you had server costs, you had icon libraries, you had a UI library, you had all this stuff that you use to build it, right, that $10,000, you could choose either to take that as an expense right away. So that's negative $10,000, from your taxes. Or you could choose to amortize it, which is basically have it spread out over many years, which is something you hear very commonly about computers, right? Like, all of us kind of know, like, if you buy a new laptop, you don't get to take off 100% of that, in the year that you bought it that has to be spread out over many years, because you get you know, five years of life out of that, right. And so for basically forever, companies could choose to either expense, these expenses, software and software development among them, or spread them out over many years. Yeah. Now, in 2017, there was a big piece of tax law in the US. Mostly it was tax cuts. And part of the sort of maneuvering to pay for those tax cuts, was to say that, and there's also a benefit of it said for five years, companies can expense all of this r&d spending. Yeah. But then as of January 1 2022, which is 14 months ago. Yeah, it must be amortized. So companies no longer had the option or have the option to take it as an expense,
Justin Jackson 22:41
like what's the proposed benefit to the government for doing it this way. The thing
Michele Hansen 22:45
about this is that when Congress passed this law, in 2017, it was known that it was basically part of the package that was that was paying for these tax cuts, and sort of just kind of, in the same way that many governments push the problem of paying for retirement off to the next generation, this was kind of doing that to companies except only five years down the line and not, you know, 3040 years down the line got and so they knew when they were passing this bill, that the intent was that they would revert this change before it took effect. So it was basically kind of some accounting sleight of hand as they were passing this bill, at this point, we can get upset about that. Or I think where I'm choosing to spend my attention is on the likely catastrophic impact it will have on companies that build software and then doing something
Justin Jackson 23:42
about it. Yeah, yeah. So this was this, from my perspective, it looks like this was political maneuvering. Nobody expected this to go through, really. But now it looks like it, it has gone through. And now I'm seeing tweets from founder friends who are like, we're doing our taxes, and instead of paying $75,000 in taxes this year, we're paying $225,000 in taxes this year, or instead of my taxes being 30%, they've gone up 350%. So it's having a meaningful impact on people right now. Are you seeing that too?
Michele Hansen 24:24
Yeah. And this is also something that companies have been predicting for a long time. And so bigger companies think, you know, Netflix and zoom and Microsoft Intel, like since 2019. They have been talking to Congress about this saying, hey, remember that taxpayers it provision that you didn't intend to take effect? We haven't forgotten about it. Let's just make sure that we fix this before 2022. And it takes effect. And they've been sending letters and talking to Congress about this for four years now. And everybody thought In 2022, that it was going to be reverted before it took effect in December. And then it kind of fell apart at the last moment with some negotiations. And and until we get into this year, and I think we small business owners alike hadn't really have included on it. Because I mean, like, I don't track, like policy legislation as part of like, I'm too busy, like responding to customers and like, like building software, right. So and dealing with sales taxes, so. So yep, now we get into this year, and our accountants are starting to say, so there's this change that Congress didn't intend for it to take effect. But it did take effect. And now, all of your software development and new features, you're adding new products, you're building stuff you probably don't think of as r&d, salaries, servers, icon libraries, whatever it is, all of that is now has to be amortized. That's no longer an expense, you can only take 10% of it. For 2022.
Justin Jackson 26:16
I did not realize that. That is not just salaries, it's also any other expense related to software development. Right. So
Michele Hansen 26:25
this means, for example, that if you are and so the crazy thing about this is also that aid, Congress didn't intend for it to take effect. But since they were widely like expected to fix this before it took effect, because nobody in Washington thinks it's good tax policy. Yeah, the IRS did not write that released the full guidance on how tax preparers implement this, they issued sort of something that's being taken basically, as a warning in January, that was like, hey, remember, this happened. But it doesn't actually define software development. Yeah, but I have been talking to a lot of experts about this in the past couple of weeks. And it is increasingly clear to me that section 174 is bad news. For every company that builds software, not just ones that have employees, not just ones that are C corpse. Like, if you have an LLC, and you're only building a product right now, and you're not even making any money, you're going to owe taxes because of this. Like it's very, you're likely to owe taxes, rather. It's everything. I mean, I was thinking about this the other day is like if we so so. So again, the IRS has never had to define software development. So we're gonna have to, we're waiting for that from them. But yeah, if they take the definition of it, that most of the major accounting firms expect them to take and what you know, big companies have been warning about in their public filings like you can find VMware, like warning about the 10s of millions of dollars in additional taxes, they're gonna have to pay in their filings last year. Yeah. Like are developers are is, are all developers gonna have to be time tracking? Like, yeah, I mean, everybody's, I mean, people are usually so relieved to stop doing client work and stop time tracking. And now it's like, Wait, what was that new feature development, which is now this r&d expense that has to be amortized. So not only your if you get a salary, right, that has to be part of that. But also, okay, I guess the staging server that you were using that part of that expense is now under this different category? You know, like, Okay, you bought, you know, tailwind UI for that, okay, that's now has to be capitalized, right? Like, versus Well, you were fixing a bug later. And so that is actually just a regular business expense. So we get to write that one off. But then what if we're doing a UI improvement? That is that a bug? Is that? Like, is that a new feature if it's easier to use, because people were not realizing there was dysfunction out like, it's a nightmare. It's an absolute nightmare. And I think the fact that big companies have been writing to Congress about this for four years now. It shows how much of a problem this is. Before we get into this conversation. Justin, it's very important that I note that I am not a tax accountant. And for advice about your specific situation, people should consult an accountant.
Justin Jackson 29:39
Yes. The same applies for me. We are not accountants, we are not lawyers. We're not giving investment advice.
Michele Hansen 29:46
Just play one on TV. This is just for
Justin Jackson 29:49
informational and entertainment purposes only.
Michele Hansen 29:52
And call to action purposes. Really. I mean, that's why that's why I'm here is not to, you know, that Be the rain on everybody's parade, right is to say, Yes, this is a big problem. Congress kind of made it. You know, five, six years ago, big companies have been trying to do something about it didn't work. And that's where we come in.
Justin Jackson 30:19
Yes. So let's talk about what you've been organizing during your hibernate mode. So you have this amazing website, s, s, B. So SS n, as in Sam, SS and Sam twice, right? S S B alliance.org. So tell us what you've done so far. And what's kind of in motion right now.
Michele Hansen 30:45
So what's in motion right now is to get small software businesses into this conversation, and hopefully, get the message through to Congress that this is an urgent problem that needs an urgent solution. So Congress, in December, they tried to repeal this. I mean, there was broad bipartisan support, like there isn't anyone who thinks this is a good idea. But it was seen as kind of a big business issue, which meant that it got parlayed off of a whole bunch of other different issues. And it all got very complicated and fell through. And this year, there is still a chance this is going to get reverted. There is again, broad bipartisan support for this, nobody thinks it's a good idea. Nobody thinks it's good tech, tax policy. But it's still seen as a big business issue. And the problem is, is like you, I'm either opening emails from my accountant about this, or I'm opening Twitter and seeing all of my friends freaking out see, saying that they might have to do layoffs, that they're taking out loans, that they're using their personal credit cards, or that they have no idea and their accountant hasn't told them. And they are getting really worried. The thing, the thing about this is that small businesses, like everybody loves small businesses, right, especially policymakers, I like to say, you know, we are the cute puppies of the policy world, just basically everybody loves small businesses. That's right. But right now, because of section 174, we are getting run over by a truck. And Congress has no idea. Yeah, because they are thinking, okay, you know, what we should we should fix this, we can do that later in the year, we can push this again to December, push it to the last minute, get something through. And, you know, big companies, they have access to credit markets, they can, they can, you know, shoulder an extra 10 $20 million in a tax bill in a year, and knowing that they're gonna get back later, right, because this, the, this would not only fix it, but also revert it so that it basically didn't take effect, you would get a refund for 2022. But if you're a small business, and your tax bill has just gone from, you know, $75,000 to $225,000. And you're making, you know, a million or two a year, that's huge. Like you may not have that money, you don't, you can't just go sell stock in order to get that money back. You can't just go to the bank and get a loan. Because I mean, the only bank that was friendly to the software companies like literally just went kaput, like Yeah, like and even use them. We use normal banks that like barely know what software is in the first place. Like, yeah, so this is a huge problem for small businesses. We can't wait a year to get a refund check for this. Yeah, we can't wait. And so what you probably know about me is that I am an indie founder, I wrote a book, I have a podcast, all that fun stuff. Way back when I used to live in work in DC,
Justin Jackson 34:01
Michele Hansen 34:02
And so when I heard about this, and I have some friends who work in the policy world, and I remember them, like kind of saying at the end of last year, like oh, this big thing I've been working on, like, you know, it didn't go through and I'm like, super bummed about it. And like, I mean, I'm like super checked out on politics. Like I'm just kind of like working and like, you know, I have a general idea of what's going on but like, yeah, definitely not falling policy. And I'm like, oh, that sounds like really rough. I'm sorry, you worked hard on this, like didn't work like go have glass wine like right and then and so everybody starts talking about this and I started hearing about it and I was like, so is this this thing that you were all upset about in December and they're like yes. Wow, it was like Oh, cuz all my friends are upset about it now. And so I have basically been pulling out all the connections I've got to get us into the conversation in DC amazing and to get For us, the cute puppy, small businesses in front of Congress so that they understand that this is an issue, right? And let me do an analogy here. This issue was kind of like for this for anybody who has teenagers who's ever been a teenager, which I know you, yeah. It's like a pile of sports equipment sitting in the hallway, right? That might be hockey equipment, it could be soccer cleats, whatever. It's sitting in the hallway. And it sits there for a couple of days. Everybody knows it's a problem. Everybody knows shouldn't be there. But everybody just keeps walking by. Yeah. And then one day turns into another. And this pile of sports equipment, start smelling really, really terribly.
Justin Jackson 35:53
Yeah, it's good analogy.
Michele Hansen 35:55
And the person who should be cleaning it up, is playing Mario Kart. And there's guests coming in 10 minutes, right. And so we need to be, you know, the person who kind of runs in there with a wooden spoon and says, Hey, this is a problem, guests are coming in 10 minutes, there's a pile of, you know, dirty equipment in the hallway, like, we need to get this done. Now, we cannot wait. And so what I'm doing is, you know, first sort of getting us together, right, we are not the most organized bunch. Just trying to organize people. And then getting people in front of policymakers. So like members of our community, because of this effort, have already talked to Hill staff already told them about how they're taking out loans and how this is affecting them. Yeah. But the big thing we're doing now is we're going to have a coalition letter to Congress, which is basically this is a formal letter to Congress that will go directly to their offices, this is not something that we just put in a contact form and pray, this is going directly to their offices because of these friends that I have amazing, and describes the impact that this is having on small software businesses. Now I know that many of us, we don't even know what the impact of it is yet. Yeah, that's okay. Like if your accountant hasn't found out about this yet, or hasn't told you about it yet. And you're worried about it, you can still sign this because you are almost certainly going to be impacted by this. And but there are people who were like, laying people off, or I mean, we were talking about hiring at another developer this year. And that conversation has just gone out the window.
Justin Jackson 37:40
And somebody else did you.
Michele Hansen 37:45
I mean, there are companies facing bankruptcy already, because of this, like this is very, very like, and I have this form of just kind of collecting everybody's emails and their addresses. So we know which congressional districts they're in and kind of how it's impacting them so far. And like it is it is just breaking my heart, every single one of these emails that again, that's like, you know, we got through COVID, we thought things were gonna be good. Like, we finally felt like we're back on our feet again, and then this happened, right, and we don't have the money for it. Banks won't work with us, like, personal credit cards, I guess, right? We need to get this letter in front of Congress. And these things are very, very effective. So there was a group of small biotech companies that sent one a few weeks ago, there were 500, small biotechs that signed this letter, which is awesome. I think that means we can do 1000. Right. Yeah. A senator, like mentioned this letter in a hearing a couple of weeks ago, like these things really make a difference. Because when that like there are our policymakers who are either already co sponsors of the bill to fix this, right? Yeah. When they're going to their colleagues, when their staff is going to their colleagues. This is a letter they can bring with them and say here is very tangible impact of very small businesses seeing tax bills that are 400%. Higher than previously for a policy that we never intended to implement. Yeah. And so as many people who are US citizens, sorry, can sign this, right. Yeah. Like all 50 states plus territories. We, we have to do this, right, because this is up to us. At this point. Yeah. The big companies have tried. It's stuck. Big business issue. It's not a big business issue. This is also a small business issue. And so we have the opportunity to get in there. shake things up a bit. And say, this is this is not hypothetical issue. This is this is not something that's only going to affect, you know, the Facebook's of the world, right? Like this is a this is going to impact small businesses and Kansas and Missouri and Pennsylvania and Arizona. As much as it is, the companies in California who are, you know, already hurting.
Justin Jackson 40:04
Yeah. And just to, again, to give it a practical example of this, like a transistor, I think like a lot of bootstrap software companies, we, we spend most of the money in a year, we take it out as owner with owner distributions, we take it out as pay our staff really well. So we don't have a lot of cash in the bank, we run it just a nice lean operation. And we know that every month we're going to have more cash coming in from recurring revenue. But if you've been running your business like that, that means that and, and you just have this expectation that any expense you have is an expense for that year. And so you can take most of the money out of the company. So if you run lean, like a lot of us do, that's where it's gonna get you. Because now you're going to need instead of needing to have whatever you normally have in your bank account, 100,000 200,000 500,000, whatever, you're going to need to have way more just to cover the tax bill, especially your one. And there's this great Wall Street Journal piece that you link to on your site. I'll quote from that. Laura Lynn Gonzalez expected a tax refund this year after her two employee data visualization company experienced a $30,000 loss. Instead, she said she's facing $100,000 federal tax bill, that is about as large as her 220 22. Salary. That's what this looks like. It looks like if you don't have the cash, to pay the tax bill. That's where you're going to get in trouble. And it works great when you can expense, you know, when you can expense developer salaries and developer costs as a full expense in that year, running lean works that way. But if you if, if that's the we've been running it and you know, LLCs, you're probably taking nice distributions, you know, all of that the way you've been working, won't work under this legislation. That's why it's so important. Because you're going to need to come up with maybe hundreds of 1000s of dollars in cash to pay a tax bill.
Michele Hansen 42:16
It's nobody really expected this to happen. And then now that it is, and we are all getting these tax bills, or it sort of very slowly, right, because there's people I've talked to who didn't, their accountant didn't realize that this was happening. So now they're not only facing the huge tax bill, but also penalties. And that five year depreciation we talked about, for spreading it out. If you are running a remote company, which a lot of people are, you've got, maybe you've got contractors all over the world. Foreign r&d expenses are 15 years.
Justin Jackson 42:54
Oh my gosh.
Michele Hansen 42:56
Yeah. Like so if you've got, you know, a lot of people have a team and you know, in Southeast Asia or in Eastern Europe, or just, I mean, spread out all over the world. Right. Yeah, that's 15 years. Wow, for that development expense. And so this is, I mean, if I hesitated to say it, because it feels dramatic, but section 174 is an existential threat to anyone who builds software. Yeah, even if you're only making $10,000 a year. Yeah, even if you don't have any employees. Yeah. This is a problem. And in, I mean, this is, it feels a little bit like putting the rookie in at the end of the game, to throw the Hail Mary, you know, to win the game, right? But it's like up to us, the little guys to do this. But folks, like folks in DC, they are very receptive. Like I've had some great calls with people, they are happy to have us on board. We're getting help. Like, we're like this letter is going to go straight to Congress, like people you probably know, on Twitter, have already talked to Hill staff about this because of this effort.
Justin Jackson 44:14
Michele Hansen 44:17
I didn't come out of my hibernation for nothing like this is a really, really serious problem. And we cannot rely on the bigger companies to sort this out. Or as you said, a couple of weeks ago, we can't have magical thinking and just pray that it doesn't impact us. Yeah, this is going to impact us. Yeah. And we have a responsibility to do something about it. And no can do something about it.
Justin Jackson 44:48
Yeah, yeah. So we, folks, if you're listening right now, and you are a US citizen, and you have you're doing anything on the side, you have your own software company. Go to s s be alliance.org right now, while you're listening, sign it, and then send it to your friends. Explain to them what's going on. And you're right, we need to have 1000 people sign this. There's, there are many, many small software businesses in the United States. And the more people that sign this right away, the bigger, the louder, we can make our voices. And we can, we can actually have a chance here, especially with Michelle's work to make a difference, we can actually get this into the hands of the right people. And, again, like she said, small business is such a strong political motivator, like this, we actually do have some power here. And we need to use it, especially because the culture has become kind of antagonistic towards big tech, while small business like mom and pop shops, we have a good reputation in the culture, and we can use that to say, Hey, you got to help us out here. Or, like, honestly, I don't know what we would do even. So that's this is your call to action, go to S S. B alliance.org. Michelle has been really good at communicating with everybody sending updates, telling folks exactly what they need to do. It'll take you 10 seconds to sign up. And then another 30 seconds to a couple of minutes to do what Michelle has asked folks to do. You want to just quickly run through what people can do besides sign up for SSP alliance.org.
Michele Hansen 46:36
So if you go to SSP alliance.org, now you will be directed to sign the coalition letter. And then there is also the option to stay updated, which is basically mandatory. Because if it turns out that you're in a really pivotal congressional district, we want you to talk to your representative. And so it's really important to have your whole address in there. I'm not sharing that with anybody, your email isn't getting shared with anybody. Like I said, I used to work in DC. I know what the tricks are when you fill out forms about politics where like, I'm still getting added to stuff because of the Obama 2008 list. I am not doing that to your email. Yeah, I'm the only person who's going to have this data, it'll get shared, you know, anonymously, like in terms of this business in Michigan is saying that they're gonna have to lay people off, right, like, things like that. Or I might reach out to you and say, Hey, would you be up for talking to a hill staffer and sharing more about what's going on in your business, but nobody else is gonna see your information. The letter will have your name, your company name and your location, again, because we need to show that these businesses are all over the country. I mean, it's kind of a funny thing, where like, Congress basically doesn't know we exist, right? Like smell software, I mean, right? Like, we're kind of looked down upon in some corners, right? Like, we're Oh, you know, lifestyle businesses, right? This is our moment to have an impact. And so that as the information is gathered, I'm the only one who's seeing that sign the coalition letter and do it on or before April 10, we need to deliver this to Congress before tax day. So April 10, is the deadline, SSP. alliance.org, to sign the letter. If you're listening to this, after that, you can still go there and just sign up for the regular mailing list. And so I'll keep you in the loop on how you can help. Finally,
Justin Jackson 48:31
yeah, and thanks again, Michele for like for, for deciding to put yourself out there to use your connections and to organize this, I was really heartened, because I feel like often, small business founders just don't want to think about this stuff. And I get it. But this is real life like this is actually happening. We don't have a reality distortion field we can use here. This is actually just real, really what's happening. So thank you so much. I think everybody Michelle didn't ask me to say this. Everyone go by her buck, thinker on Twitter. Sign up for geocode do. But most of all, just thanks so much. And let's help her do. Let's help her get this in motion. So send this to your friends sign it right now. Spread the word. And yeah, let's try to get this. Let's try to get this reversed.
Michele Hansen 49:27
Thank you, Justin. And I mean, if anybody else, if you've got a podcast, if you've got any kind of President presence, anywhere, LinkedIn, Twitter, wherever that is, if you have a presence among software founders. You need to use that now. If you want to continue being a software founder, and you want those people to continue being software founders, as well. We have to do something about this. And so just reach out to me I did a scary thing, which has opened my DMs so Yeah, and I'm already getting so many Bitcoin raffle off. Make it worth it people. Okay, reach out to me. Yeah, I'm out of my hibernation. We're gonna make this happen. We all need to be on board to make it happen.
Justin Jackson 50:14
Yeah, thanks so much, Michele. You can get Michelle on Twitter, M. J. W. Hansen, that's h a n s e n. She's got a lot of other links on her Twitter page. But then s s b alliance.org will also give you her email address, which is then you can be in contact with her directly. And yet, let's get let's make this happen. And we'll let's do a follow up episode after that deadline, which was April 10. Yeah, after April 10. Let's do another episode just to update folks on this. And we'll go from there.
Sounds great. Thank you. Thanks again.
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