That's the change, salaries can no longer be counted against revenue in the same year and has to be amortized. For tax purposes, you now have a profit of $1M (1.2M of revenue - (1M of salary * 0.2)). This makes sense for assets right, if you buy an excavator worth $1M you shouldn't be allowed to count that all against your profit because you still have ~$1M worth of excavator you could sell or something, but it doesn't make sense when applied to salaries.

EDIT: It's actually a little worse than this, you can only amortize 10% on the first year

The 2017 law changed the way software development expenses are counted for tax purposes. 2023 taxes are the first taxes this rule affects.

Details:

https://www.onlycfo.io/p/new-tax-rule-is-terrible-for-softwa...

I mean you might considered a loaded gun to be a gun with bullets in it but by most laws if you hold the bullets in the left hand and the gun in the right hand that's a loaded gun. The law needent be consistent with common understanding.

So, in lets say 2023 your business brings in $1.2M of revenue from a pure-software product. Your net cashflow is $0.2M because you paid $1M to the dev team. Come tax time you have to report a revenue of $1.2M and the maximum allowed expenses are $0.2M so you have to pay taxes on that $1M of profit.

The reason the maximum allow expenses are $0.2M is because Software is considered R&D now so the expenses towards it (the $1M in salary) _must_ be amortized over 5 years. So if next year you also had $1.2M of revenue and $1M of salaries you'd be paying profit on $1.2 - 2 * ($0.2M) since there's two years of salaries be amortized now.