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Cofactor
§ Taxes & ROI the part nobody told you

When you buy custom code, the IRS sends you a five-year bill.

Most small businesses don't realize this until their accountant mentions it in March: software you commission is a capital asset. You can't deduct it the year you pay for it. You amortize it — usually over three to five years. That changes the math on every "cheap" developer quote you've ever seen.

§ 01 — The argument, in plain English

Two ways to buy software. The tax code treats them very differently.

case a

You hire a developer for $40,000.

  1. You wire $40,000 in year one.
  2. You receive code. You now own a software asset.
  3. Per IRS §174 & §197 guidance, you amortize it over 5 years.
  4. Your year-one deduction is $8,000, not $40,000.
  5. $32,000 sits on your balance sheet, depreciating slowly.
  6. If you scrap or rebuild before year five, the unamortized portion is a write-down, not a deduction.
net year-one cash impact −$40,000 paid
−$8,000 deducted
case b

You hire Cofactor for $20,000 / yr.

  1. You pay $20,000 in year one.
  2. You receive a service. You don't own anything.
  3. Per IRS Pub 535, an ordinary & necessary service is a current-year operating expense.
  4. Your year-one deduction is the full $20,000.
  5. Nothing on your balance sheet. Nothing to depreciate.
  6. If you stop, you stop paying. There's no asset to write down.
net year-one cash impact −$20,000 paid
−$20,000 deducted

This page describes the general accounting treatment for U.S. small businesses and is not tax advice. Your accountant has the final word.

§ 02 — Run your own numbers

Plug in your tax bracket and the quote you got. Compare 5 years out.

$10k$200k
$0$40k
Cofactor plan $20,000 / yr · System
0%40%
315
5-year cash out · custom dev $80,000
5-year cash out · cofactor $100,000
5-year tax savings · cofactor $8,000
net 5-year cost · cofactor advantage $2,000 cheaper
5-year cost comparison: custom developer versus Cofactor, showing annual paid and deductible amounts
Custom developer Cofactor
Year Paid Deductible Paid Deductible
Total (5y)
§ 03 — And that's only the tax line

The hidden costs of "owning your software" don't show up on the invoice.

01

The maintenance treadmill

Frameworks deprecate, libraries break, browsers move. Without a maintenance contract, you pay the same developer their hourly rate to fix things they wrote a year ago.

02

The bus factor

The freelancer who built it goes on tour, has a kid, takes a job. You inherit code only one person has ever read.

03

Hosting, security, backups

Always quoted as "your responsibility" in a developer SOW. With us they're inside the plan.

04

Opportunity cost of an idle codebase

Custom code that isn't actively maintained gets less valuable every quarter. Service contracts get more valuable — agents and tooling improve under you.

05

The Squarespace ceiling

Cheaper-feeling than us, until the day your business needs something the platform can't do. Then you're starting from zero, paying for a developer, and re-reading section 01.

§ Next step

Bring the calculator output to your accountant. Then book a call.

Most accountants will confirm the treatment in five minutes. After that, the only question is which plan fits.

Book intro → See plans