Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

news.ycombinator.com

Post reply on HN
Print view View original

221–230 of 957 posts

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

#221

Post by naikrovek »

zacharycohn wrote: post #141
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…

Just to drive the point home very explicitly: That means, in the given example above, you are able to deduct $180k that first year instead of $900k. That gives you a profit, from a tax perspective, of $820k. But you only have $100k of actual dollars. Good luck paying your taxes!

> That gives you a profit, from a tax perspective, of $820k.

> But you only have $100k of actual dollars.

> Good luck paying your taxes!

a lot of people here are conflating "taxable income" and "the amount owed in taxes" for some reason.

if I earn $100/year, and I can deduct $50 of that, my tax bill is not $50. It is some percentage of $50, usually a low number for businesses. (Amazon regularly pays $0/year in taxes.)

depending on the tax rates and the locality of that business, the amount owed on tax is going to be anywhere from $0 to $50, and it is going to heavily favor the low end of that spectrum. I don't think any business pays 100% of its taxable income in taxes unless they have been heavily fined.

$100k is likely far more than enough to pay the tax on $820k of taxable income for a business. It could be enough to pay that tax bill 10 times over, it's hard to say.

my point is that taxable income != tax owed.

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

#222

Post by stonemetal12 »

EFreethought wrote: post #194
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…

Maybe this is a dumb question, but if you only deduct part of their salary in the first year, what happens if you have a software developer for several years? And then what happens after five years if they are still around?

After five years you are back to the status quo. It is a short term problem, long term there is no difference between the two. It primarily hurts young companies that don't take VC money, and shortens the runway of those who do.

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

#223

Post by kbolino »

Mistletoe wrote: post #174
wulfgarbet wrote: post #25

Earlier quoted context omitted.

When a company that earns $150k/yr and hires a software engineer who costs $100k/yr, that company should be able to deduct that salary in full. The way it works today they must amortize it, taking only 20% per year. So they’d owe taxes on $130k of $150k, instead of the more rational $50k of $150k. This effort is to restore rationality.

Why was the change made to amortize the tax?

To bypass the filibuster.

To pass a bill the normal way, you need 60% of the Senate to agree. But certain kinds of bills can be passed through "reconciliation" which only needs a simple majority. Such bills must be "budget neutral" as assessed by the CBO. So legislators throw in hacks like Section 174 in order to game the system and offset other provisions they actually want.

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

#224

Post by throwawaymaths »

naikrovek wrote: post #205
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…

say I work for a company for 5 years as a software developer, at $200k/yr the entire time. is this how it works: year 1: company deducts $40k: 1/5 of the salary for year 1. year 2: company deducts $80k: 1/5 of the salary for year 2, and 1/5 of the salary of year 1. year 3: company deducts $120k: 1/5 of the salary for year 3, 1/5 of the salary for year 2, and 1/5 of the salary for year 1. year 4: company deducts $160k…

modulo accounting shenanigans company like amazon is ~ unaffected by this rule since its capable of amortizing salaries anyways

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

#226

Post by ethbr1 »

teeray wrote: post #179
abeppu wrote: post #158

Earlier quoted context omitted.

IDK if that's right. Oddly, the current administration has gutted the IRS and seems pretty ambivalent about collecting taxes that are on the books. I wonder if there will be an inconsistent definition of who is a software engineer, based on how friendly the company is with the administration, whether the company still has someone with a DEI title, etc.

> the current administration… seems pretty ambivalent about collecting taxes that are on the books. I wonder if there will be an inconsistent definition of who is a software engineer, based on how friendly the company is with the administration, whether the company still has someone with a DEI title So basically the same situation that we have with bullshit speed limits everywhere.

If we had specifically defunded highway patrol that was net-revenue-positive, yes.

Republican defunding of the IRS is literally insane: reform by cutting enforcement.

- It rewards people who cheat on their taxes.

- It costs the government more money that it saves, because IRS investment is net revenue positive.

But then, the modern Republican party seems more concerned with being the party of 'law(s I agree with) and order (for people who aren't me).'

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

#227

Post by jgalt212 »

thaumasiotes wrote: post #206
jgalt212 wrote: post #54

As a business owner, I've been adversely impacted by this. I still can't wrap my head around how this is legal or sustainable. If I buy $1MM of plant and equipment, I may not be able to expense it all in year 1, but I can relatively easily get a loan to finance the purchase of such--and manage my cashflows. The same is not for devs. I cannot easily get a loan for $1MM in dev salaries. In my own case, I don't need the…

Question: say you buy the equipment personally and then rent it to your business. What does the tax treatment look like?

If the company is a pass through entity, I'm pretty sure this nets out to zero. I don't know how this nets out under a C corp.

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

#228

Post by bigstrat2003 »

candiddevmike wrote: post #154
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…

How do we restore only the tax deduction and not pass the rest of the BBB?

You contact your representatives in Congress (mail, phone, in person at town halls and such) and say "hey, stop passing giant omnibus bills". You encourage others to do the same. That's all you can do, as a citizen.

Unfortunately it won't make a difference because the vast majority of Americans simply do not care. So very few people will be putting pressure on their representatives, and nothing will change.

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

#229

Post by narag »

ASalazarMX wrote: post #118
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…

That's nuts, since a payroll should never be considered an asset. That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. The value of software could be based on something more realistic, like a percentage of actual revenue, but I suppose tech giants would be against that.

That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code.

I'm not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you're expected to keep extracting value from it over the years, so you can't get a deduction for the whole expense when you first pay for it.

If that's what this is about, it's absurd not for the reason you say (salaries are not a bad proxy for value, since you expect the profit will be greater) but because you'll probably keep paying for maintenance and evolving the software.

Post reply on HN