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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)

#311

Post by hinkley »

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…

Let's be honest. At a bunch of shops the engineers hired in year 2 will never be properly recouped because the company will be out of business in less than 7 years.

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

#312

Post by throwaway7783 »

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…

I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue.

Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)

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

#313

Post by davidgay »

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…

This description is misleading (as many of them seem to be), because you're only describing the first year.

After 5 years of constant expenses, the deductions match the costs. If expenses diminish, deductions exceed costs.

-> this is bad (in the short term) for companies that are growing.

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

#314

Post by grogers »

yojo wrote: post #220
addaon wrote: post #190

Earlier quoted context omitted.

> 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. Software clearly has material value. For software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it. What other estimate of its material value is better than the one that the compan…

The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive. If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.

How does this compare to a machine that breaks and is thrown away before its amortization is complete? For the machine can you immediately deduct the remaining amount or is it required to continue to spread the value over the original time period?

I would imagine software that is thrown away should be similar?

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

#315

Post by throwaway7783 »

ndriscoll wrote: post #295
throwaway7783 wrote: post #284

Earlier quoted context omitted.

As long as the same is held true about car designs that never went to production, drug design that were not deemed profitable etc. Why pick on just software?

Yes, clearly the same reasoning applies to any copyright, patent, or trade secret (and we should stretch out the depreciation schedule to match the durations of those things. It follows that development of trade secrets would not be deductible. Perhaps a new category of escrowed expiring trade secrets could be created to make it deductible). We could all benefit from companies publishing research that didn't pan out,…

As much as I like this Utopia, this will unfortunately never happen in a capitalistic country.

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

#316

Post by pzo »

Wish someone in EU do similar signing / votes for lobbying EU for taxing US Tech companies or applying 15 years amortization for all US products as a revenge - sorry US but 15 years amortization for everyone outside US is just worldwide tariff for any other software producers, freelancers, etc.

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

#317

Post by [deleted] »

tossandthrow wrote: post #209
abeppu wrote: post #184

Earlier quoted context omitted.

> The core question is to what extend software constitutes an asset or consumption. Isn't part of the problem with our industry that, even it is an asset, its value can be hard to determine even for a long time after you've written it, and it may be pretty weakly related to how much you paid to build it? - you might have spent a lot on developers last year but next year you find out that you're the new Quibi and no o…

These risks would appear to be the same as a shoe producer wanting to bring shoes to market - regardless they are still taxed on the value of their inventory.

[deleted]

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

#318

Post by OneDeuxTriSeiGo »

raverbashing wrote: post #296
OneDeuxTriSeiGo wrote: post #210

Earlier quoted context omitted.

> • data conversion activities, except for activities to develop computer software that facilitate access to existing data or data conversion ex: linking excel spreadsheets or setting up excel to ingest data from a sharepoint or network drive would still fall under the definiton of software developer > • maintenance activities after the taxpayer places the computer software into service So a sysadmin or a DB admin wr…

You missed the paragraph saying that maintenance activities are not considered development activities

But that's the rub right? What is the definition of maintenance activities? And for what software? If you are writing a new script to automate something or updating an existing script, is that not software development?

If that's considered maintenance activities then would maintaining a software codebase not be considered maintenance activities then?

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

#319

Post by kazinator »

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…

> If you pay a software engineer, that's not "really" an "expense", regardless of the fact that you paid them.

If I pay for ... pretty much anything whatsoever ... I cannot write it off my personal income tax here in Canada. Not housing, not food. Medical expenses will come off the bottom not off the top.

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

#320

Post by vasco »

dang wrote: post #14
vasco wrote: post #12

> but this issue has as close to a community consensus as HN gets Curious how this is assessed of you could share?

The number of threads and the comments in those threads. e.g. from a few days ago: https://news.ycombinator.com/item?id=44208063 https://news.ycombinator.com/item?id=44208875 https://news.ycombinator.com/item?id=44207240 https://news.ycombinator.com/item?id=44205579 https://news.ycombinator.com/item?id=44205479 https://news.ycombinator.com/item?id=44204864 https://news.ycombinator.com/item?id=44204808 https://news.yc…

Thanks - interesting to focus on tax cuts for the already rich but I guess it does make sense if the people here want it.
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