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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)

#241

Post by stego-tech »

abeppu wrote: post #207
stego-tech wrote: post #7

I’m all for reverting that part of the tax code, but only on the condition that it’s inapplicable to H-1B visa or foreign worker salaries/payments, provided that employer pays local taxes in those countries for those roles. Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity.

> Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity. I'm all for giving more people a faster path to a green card if they want it. But should a person really have to get permanent resident status to have a decent job here? If someone wants to work for a few years in the tech industry in the US but expects that they may want to go back to their home country (or an…

That’s the neat part of the Permanent Residency (Green) card: you don’t have to stay forever. What that change does is destroy outsourcing and H1B visa mills by forcing employers to hire domestically first, and actually go through the process of sponsoring an immigrant’s Green Card if they want to hire cheaper foreign labor.

It does not deter expats, it protects them from exploitation and abuse by employers.

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

#242

Post by codazoda »

NickHirras wrote: post #169
logifail wrote: post #132

Earlier quoted context omitted.

Businesses don't get to say they're claiming "$900k in costs" ... it depends on what kind of costs ... EDIT: and in this instance, it depends on what kind of software engineering.

This is what's happened at my workplace. We account for time spent working on developing new products differently that development time maintaining legacy applications. Because they are reported for tax purposes differently.

This gets really “gray”. I work on web software and we tend to deploy at the end of the day. Meaning only the smallest programs are “new” or not yet in service.

This is a mess.

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

#243

Post by naikrovek »

OneDeuxTriSeiGo wrote: post #233
naikrovek wrote: post #205

Earlier quoted context omitted.

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…

That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating. This punishes small businesses and new businesses more than any large org because it massively incre…

> it massively increases

that depends entirely on how much the business is taxed. every $1 deducted from taxable income is NOT $1 saved in that business' tax payment. It's much more like $0.10-$0.30 saved in taxes.

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

#244

Post by stego-tech »

triceratops wrote: post #28
stego-tech wrote: post #7

I’m all for reverting that part of the tax code, but only on the condition that it’s inapplicable to H-1B visa or foreign worker salaries/payments, provided that employer pays local taxes in those countries for those roles. Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity.

> provided that employer pays local taxes in those countries for those roles. This was phrased a bit confusingly, at least to me. Can you explain?

It’s a double taxation thing. If the employer is paying taxes abroad (as in, a net positive payment to that country’s tax collection agency), then we should absolutely give them the IRS break on labor here; if they’re not paying taxes abroad, then they’re taxed on said labor here.

The idea is to reduce offshoring as a means of dodging tax liability for multinational firms. If they want the tax cut here, they gotta pay up everywhere else they do business.

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

#245

Post by ndriscoll »

arcbyte wrote: post #73
wagwang wrote: post #44

Earlier quoted context omitted.

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 depre…

You do, however, have $160k worth of software that is generating ~$16k/mo in revenue (or more since you presumably did not make that $200k evenly spread out across year 1 while you were developing the software), so in year 2 you could halt further development, use a loan to get through the 2 months it takes to make the money to pay your taxes, and then make $176k profit. Then you pay your taxes on year 2 and walk away with $152k in the bank along with $120k worth of software asset.

(Of course an asset that generates $200k/year is actually worth far more than $200k, so in that case 20% depreciation seems even more absurd)

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

#246

Post by aqme28 »

naikrovek wrote: post #221
zacharycohn wrote: post #141

Earlier quoted context omitted.

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.…

(Not a tax professional) The federal corporate tax rate is 21% and for states it ranges from 0 to about 9%.

So generally you're going to pay at least 21% or $170k for those "profits."

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

#247

Post by stego-tech »

op00to wrote: post #49
stego-tech wrote: post #7

I’m all for reverting that part of the tax code, but only on the condition that it’s inapplicable to H-1B visa or foreign worker salaries/payments, provided that employer pays local taxes in those countries for those roles. Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity.

> Keep good paying jobs in the USA Uh oh! > give them Green Cards instead of precarity Oh, right, yes! :D You had me for a minute.

If we’re being honest, every country should want to preserve high paying jobs for its citizens. Citizens that get paid well have more spending money, which drives domestic economic growth, which creates more jobs…you get the idea.

Outsourcing and exploitative visas are a negative feedback loop that shrinks the actual economy vis a vis stagnant or decreasing wages and higher employment precarity. To have a healthy domestic economy, domestic employment must be prioritized.

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

#248

Post by alistairSH »

Possibly dumb question... For a medium/large company, is this really a big deal? Their payroll is relatively stable year-over-year, so after a few years, it all evens out (very roughly). Or am I missing something?

IE, is this really an anti-competition law, designed to protect entrenched tech industry players and prevent up-starts from, well, starting?

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

#249

Post by tzs »

siliconc0w wrote: post #90

This is where it's really important to use a bug tracker that can distinguish between bugs/maintenance and feature development. The former can be deducted but the latter has to be amortized.

The law says:

> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure

I don't see why that would not apply to software developed for bug fixes or maintenance.

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

#250

Post by spockz »

Volundr wrote: post #232
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…

Forgive the naive question, but is this different than other payrolled employees? So for normal employees you get the deduct the year it's paid, but for some reason for software developers you have to amortize it?

The logic outlined in other posts is that this is because software is seen as an asset that nets dividend. As such, like with houses you can’t deduct all the costs at once because you keep extracting value out of it.

I’m not sure whether I understand why that now applies only to software and not other things.

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