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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)

#321

Post by ncruces »

teeray wrote: post #159
tossandthrow wrote: post #101

Earlier quoted context omitted.

While this does convey the idea, the premise is also biased. > even though it has a total of $100K in the bank after the actual expenses were paid. People running a business can perfectly understand the concept of liquidity. And yes, just because you transform money to something else, then it doesn't mean that you should not be taxed on it. The extreme example is a company that buys gold on the last trading day of th…

> The core question is to what extend software constitutes an asset Maybe we can finally deduct all that technical debt.

If a software project fails can we claim depreciation, like after a car crash?

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

#322

Post by eslaught »

davidgay wrote: post #313
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.

Or any company in its first 5 years of operation. (Or any company, period, within the first 5 years of the law being introduced.)

It takes 5 years to fill the pipeline, so even if the steady state would be fine, getting to that state might be impossible.

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

#323

Post by koolba »

axus wrote: post #297
EnderWT wrote: post #198

Earlier quoted context omitted.

The IRS released guidance back in 2023: https://www.irs.gov/pub/irs-drop/n-23-63.pdf It starts on page 23. Plenty of analysis online by tax firms but I'll quote from this one: https://insightplus.bakermckenzie.com/bm/attachment_dw.actio... > Generally, activities treated as software development for section 174 purposes include, but are not limited to, the following. • planning the development of the computer software…

What a wonderful sales pitch for a timesheet software feature. Track non-software-related work for expensing in the current tax year.

Any decent sized company already does this. You’ll see a field on things like Jira tickets for whether something is maintenance or capital improvement. And presumably that information can be used to infer the percentage of a given workers time that can be attributed to deductible vs depreciable expenses.

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

#324

Post by abeppu »

stego-tech wrote: post #241
abeppu wrote: post #207

Earlier quoted context omitted.

> 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.

Sure, and a hunting license doesn't require you to shoot anything but it would be weird to oblige you to get one if you don't have an intention of hunting?

If green cards are easier to get, then the people that want them, and who you seem interested in protecting from abuse and exploitation can choose to apply for them -- great! It would have this effect even if you don't require every employee to have a permanent residence rights.

If you create the requirement where only someone with permanent resident status can be hired, but you don't make green cards actually easier to get, then you've just put in some protectionist/nativist barrier.

But if someone doesn't necessarily want to be a permanent resident, but does meet some other work visa, and an employer wants to hire them, you're just creating an extra bureaucratic obstacle for them, and claiming that it's for their benefit.

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

#325

Post by ManBeardPc »

OneDeuxTriSeiGo wrote: post #119
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…

So it applies to software engineers but under what definition of software engineer? This [1] is the only definition the code actually give. > (3) Software development > 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. 1. https://www.law.cornell.edu/uscode/text/26/174 ----- Is a test or QA engineer c…

> 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.

For me that sounds like everyone and everything in a company that develops software of any kind, including low-/no-code stuff, accounting, HR, travel costs, massages. Like who is not "in connection with the development of any software" in a company that develops software? Without further definitions this is even worse then just software engineering costs.

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

#326

Post by koolba »

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.…

> 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.)

It’s not that low. Federal corporate tax rate is 21%. So you would be on the hook for $10 in taxes.

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

#327

Post by digitaltrees »

davidgay wrote: post #313
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.

Most startups won’t make it five years especially if they have to raise or borrow money to pay taxes on phantom profit.

There is no rational basis for this tax change it was a vindictive attack on blue states in the first Trump admin and an attack on California and SV in particular along with the SALT tax changes.

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

#328

Post by epistasis »

addaon wrote: post #190
ASalazarMX wrote: post #118

Earlier quoted context omitted.

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. 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…

> 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

Even in the absence of the Trump tax rule, a software company values the software they are building a lot more in financial terms than the cost of building it. Any project where value=cost should be cut, when the value is taking into account the value it brings to the rest of the company.

This is the entire point of the business, after all: take labor, land, and capital and make something that's worth a lot more to the world than the sum of the components.

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

#329

Post by digitaltrees »

spockz wrote: post #250
Volundr wrote: post #232

Earlier quoted context omitted.

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.

Those arguments fall short when considering the fact that that the construction company deducted the wages of the workers that built the house. The software development firm is the builder not the home owner.

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

#330

Post by Negitivefrags »

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?

Theoretically it’s the same with any asset you pay someone to make.

If you pay someone to make a chair, you don’t deduct the salary. Instead you create an asset valued at what you paid to build it, then depreciate it over time.

The arguement for this is that it would be inconsistent to do otherwise. After all, why should buying a chair from someone else be different than paying an employee to do it?

It’s worth noting that this change brings the USA in line with international financial reporting standards, so it’s not like it’s some crazy unique idea or anything.

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