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

Post by tash9 » Mon, Jun 09, 2025, 5:27 PM UTC

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?

Post by GavinMcG » Mon, Jun 09, 2025, 5:28 PM UTC

logifail wrote: post #117

mediaman wrote: post #66

A lot of people don't know what this Section 174 is about, so here's a brief explainer. Normally, when you have expenses, you deduct them off your revenue to find your taxable profit. If you have $1 million in sales, and $900k in costs, you have $100k in profit, and the government taxes you on that profit. Section 174 says you can't do this for software engineers. If you pay a software engineer, that's not "really" a…

> Normally, when you have expenses, you deduct them off your revenue to find your taxable profit. If you have $1 million in sales, and $900k in costs, you have $100k in profit [..] I'm not sure it's helpful to simplify quite that much, doesn't this usually depend on whether we're talking about operating expenses (typically rent, utilities, salaries, supplies) or capital expenditures (typically buildings, land, intang…

Post by blks » Mon, Jun 09, 2025, 5:30 PM UTC

rgbrgb wrote: post #102

cjbgkagh wrote: post #95

Earlier quoted context omitted.

It wasn't intended to stick, it's a bad idea that was intentionally bad in order to make it easier to reverse.

I don't follow. What is the motivation of doing something intentionally bad to make it easy to reverse?

Post by gertlex » Mon, Jun 09, 2025, 5:32 PM UTC

hwillis wrote: post #87

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…

> a few years ago, the IRS stopped allowing the $1M to be deducted It was Trump's 2017 Tax Cuts and Jobs Act, which amended IRS code.

Post by demosthanos » Mon, Jun 09, 2025, 5:32 PM UTC

sahila wrote: post #108

freeone3000 wrote: post #65

Earlier quoted context omitted.

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…

> This is unlike how capital assets are valued for any other industry! Is your dismay that it's unfair compared to other industries or that the policy doesn't reflect reality that software is a capital asset that has a lifetime longer than 6 years for many companies?