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Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

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Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#71

Post by niam »

varsketiz wrote: post #38

Somehow I'm not a fan of HN using this community for lobbyism purposes.

May I ask why?

It's expressly the intention of democracies to hear from constituents (and conversely: groups of constituents). That we happen to call that feedback loop "lobbying", and that the term carries some societal baggage from corporations using/abusing it is unfortunate, but shouldn't be an indictment of what is otherwise a democratic function.

Some group FOO with a shared ill should be able to convene about it and petition congress about it.

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#72

Post by [deleted] »

freeone3000 wrote: post #65
ndriscoll wrote: post #35

Earlier quoted context omitted.

I would be surprised if nearly all software companies wouldn't consider their code to be a valuable capital asset. For example, do you think your company would be okay with releasing commits/snapshots of their source code and design docs into the public domain once they hit 5 years old? Or do they currently depreciate too quickly ?

Salaries are not generally considered “capital” - HR wording aside, you do not own your employees. It’s an immediate expense that may, or may not, produce something of value. The IRS is using a theory of value where software (1) is a capital asset (okay, sure), (2) has a six-year deprecation schedule (uhhh why not 5 like everything else?), and (3) is valued at the exact cost of all inputs to it, including salaries (u…

[deleted]

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#73

Post by arcbyte »

wagwang wrote: post #44
vessenes wrote: post #3

Thanks for working on this guys. The current tax code is fairly crazy: you could spend a few million in salaries, sell 200k of software in a year and possibly owe taxes on that. Even if the company would otherwise be shutting down. The traditional capital asset treatment applied to software leaves a lot to be desired. Some software is a capital asset, but much just isn’t. Or at least should be considered to depreciat…

Isnt this just false? I thought corporate taxes are levied on net income?

Corporate taxes are indeed levied on net income after expenses. Trading money for capital assets is not considered expense.

If you start the year with 0$ in your bank. After the end of the year you have made $200k in revenue. However you "spent" $200k on software salaries. However, because these are software costs, they must be depreciated over 5 years, so only 20% of that $200k software cost can be applied as depreciation cost which is considered an expense. So your net income for this year is $200k revenue - $20k depreciation expense = $180k. Your 15% tax on this is $27k.

So you made $200k and spent all of it on software, so your bank account is 0, but you owe $27k in taxes.

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#74

Post by rectang »

freeone3000 wrote: post #65
ndriscoll wrote: post #35

Earlier quoted context omitted.

I would be surprised if nearly all software companies wouldn't consider their code to be a valuable capital asset. For example, do you think your company would be okay with releasing commits/snapshots of their source code and design docs into the public domain once they hit 5 years old? Or do they currently depreciate too quickly ?

Salaries are not generally considered “capital” - HR wording aside, you do not own your employees. It’s an immediate expense that may, or may not, produce something of value. The IRS is using a theory of value where software (1) is a capital asset (okay, sure), (2) has a six-year deprecation schedule (uhhh why not 5 like everything else?), and (3) is valued at the exact cost of all inputs to it, including salaries (u…

> (3) is valued at the exact cost of all inputs to it, including salaries (uh oh).

Thanks, that really gets at the heart of the issue.

Are any other business processes and elements — e.g. accounting mechanisms, print design, sales funnels — valued this way?

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#75

Post by varispeed »

Jabrov wrote: post #11
Salgat wrote: post #6

Maybe we should focus on fixing H1B first?

What's wrong with H-1B?

It's subsidy for big corporations so they can get cheap talent whilst removing incentives for domestic workers to learn the trade or upskill. You also get more people competing for resources which means higher prices. Quality of life going down whilst corporations getting richer.

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#76

Post by atxtechbro »

Signed. As a US-based developer, I fully support restoring the deductibility of software development expenses. This policy change quietly gutted countless startups and engineering teams—it’s long past time we fix it.

Appreciate YC and folks like @itsluther pushing this forward. This isn’t just a tax issue—it’s about keeping innovation and talent thriving in the US. Let’s get it done.

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#77

Post by readthenotes1 »

jsherwani wrote: post #70

For folks that don't know the background on this, here's a layperson summary: - A business is usually taxed on its profits: you deduct your revenue from the cost of producing that revenue, and the delta is what you are taxed on. - In software businesses, this usually means if you spend $1M in software development to develop a web app, and it makes $1.1M in that year, you'd get taxed on the $100K profits. - However, a…

Why do you assume a 50% tax rate in the United States when it is only 21%?

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#78

Post by amluto »

Terr_ wrote: post #63
ndriscoll wrote: post #35

Earlier quoted context omitted.

I would be surprised if nearly all software companies wouldn't consider their code to be a valuable capital asset. For example, do you think your company would be okay with releasing commits/snapshots of their source code and design docs into the public domain once they hit 5 years old? Or do they currently depreciate too quickly ?

I don't think that framing really tells us much, because there could be many reasons not to release that code that don't indicate it's an asset, such as (A) worries it might have still-relevant security issues, (B) costs of scrubbing other information like employee PII, or (C) the code is too useless to be worth the effort. If the goal is to measure retained value, I'd ask how much a competitor would pay to acquire y…

Possibly more than it cost to develop in the first place, at least in some industries. Which might result in utterly absurd tax treatment.

Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

#80

Post by lostdog »

dang wrote: post #31
lostdog wrote: post #19

Interesting that YC is jumping on this tax code thing, but the shitty tax situation for employees trying to hold onto the equity they've earned is just ignored. The number one problem for startup employees is that the AMT tax makes it impossible to exercise options in a company that is doing well. YC is showing us that they will fight for changes to the tax code when it benefits their bottom line directly, but are si…

It's possible to care about more than one thing. Who doesn't?

Yes, it is possible to care about more than one thing.

YC was founded more than 20 years ago, and I don't recall any lobbying on the issue of employee tax treatment. If they do care about this they are being super quiet about it.

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