301–310 of 957 posts
What inspired working to reverse this now? I'm all for it, just curious as the law has existed for 8 years and been in effect for 3. Seemingly little interest from anyone in the tech world to put lobbying behind reversing it until this point. What changed?
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…
Does it apply to solo companies that provide software consulting to others? I guess it doesn't for S-Corps, because of passthrough, but might for C-Corps?
I'm going to be that guy and just say that one of the many many harmful side effects of income taxes is the kind of social engineering power it gives politicians, who are neither qualified nor properly motivated to make good decisions with such tools. Income taxes are an unethical pollution to our society and government.
What do you propose instead?
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The answer to this seems obvious to me: let the company publish all code and documentation pertaining to failed experiments and release it into the public domain to be allowed to fully depreciate it immediately. If it is actually worthless, they should be happy to do so.
That doesn’t follow. Code can contain extremely sensitive and/or valuable IP independent of the value of the code as an asset. Reduction to practice frequently fails to produce usable software.
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Accounting likes to recognize expenses with revenues. If an asset will be producing revenue for five years, its cost is recognized over that same time span.
So...don't you get value from the newly created software for ~5 years?
For example: your average AAA game will likely produce the vast majority of its value inside the first year upon its release.
At the extreme opposite end you have things like enterprise software using subscriptions, whereby the software continues to produce value year over year, but you're generally also paying developers' salaries to maintain and enhance the softare year over year. That, too, makes little sense in spreading out salaries as a cost over 5 years.
I can't really think of any cases where a piece of software is sold as shrinkwrap software, requires no ongoing maintenance/updates, and is expected to continue earning revenue for many years afterward. That just isn't the industry we live in.
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…
The questions of this legislation, though, are different:
Should we incentivize companies to hire corporate executives instead of engineers?
Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concentration.)
If you agree that we should discourage hiring engineers in favor of management, that concentration is good, and that low corporate tax rates are good, then this legislation is perfect.
I say that it's good if you believe in low corporate tax rates because this legislation was passed to pay for overall corporate tax cuts, which primarily benefits the largest companies. Amazon actually pays $11.3 billion in income taxes a year (not zero), so on net, even though they have a lot of software engineers, they benefit from this legislation, because they effectively traded having to float money to the government in exchange for lower tax rates.
Big companies care about tax rates more than liquidity, because their borrowing rates are cheap, whereas small companies care more about liquidity (they effectively cannot borrow, or it is very expensive) and their profits are low. So this effectively subsidizes big companies at the cost of small companies.
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So...don't you get value from the newly created software for ~5 years?
The answer to that question can only be reliably answered in 5 years. Actual honest valuation of software is something that requires actual evidence. Software returns have extremely high variance. From a lot, to none, to high negative (For projects that don't complete, or worse, deploy to negative effect.)
Only now if those people you have to pay to keep them running are software developers, you have to act like the money you’re spending on them is helping make new value, not merely paying interest on technical debt. Fun!
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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.
And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.
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> under what definition of software engineer? Probably a broad enough definition to net the US Government the greatest tax revenue possible for the effort to enact this.
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.