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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)

#341

Post by awkward »

jncfhnb wrote: post #333
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’re building software that is intended to be used for longer than a year then it should be capitalized. The argument on HN is always just complaining that it’s unfavorable to devs; but it’s perfectly reasonable with regards to actual tax principles.

Software engineers hired for custom, in house work are not building a fixed piece of software with the intention of letting it loose unchanged for the next five years.

Software engineers hired to build product are not exclusively building a finished product, and are increasingly necessary as part of the expense of operating that product long term. Industry trends have gone towards combining and blending developement, security, operations, and design.

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

#342

Post by santiagobasulto »

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…

What happens if you outsource all that to an "offshore" company? Is it considered an expense?

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

#343

Post by neilv »

codingdave wrote: post #155

Signing a letter is fine, but will not have the same impact as phone calls made to your representatives. https://5calls.org/why-calling-works/ You don't need to use that site - the point is that if you want to have the loudest voice, make some calls.

> Other kinds of messages take longer. Emails have to be manually read and sorted. Faxes have to be digitized and emailed. [...] By contrast, congressional staffers tally phone calls right away.

Golly. Is this a problem? Hasn't this been solved already? Do they want to solve it? How much do they want to solve it, in terms of United States Dollars?

This is now easy for many HNers to build, with the hard parts now done by free off-the-shelf components.

The customer could have those email tallies even faster than the phone staffer tallies, for the timely read on constituents that the 5calls.org Web page suggests.

And then they can manually or semi-manually review the emails later, for nuance and genuine responses. But they got the important tallies immediately, on their live dashboard and timely alerts.

(But keep those human staffers answering phone calls, since I'd guess that AI on phone there would alienate the very engaged voters who still make phone calls.)

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

#344

Post by verdverm »

eximius wrote: post #280
bawana wrote: post #276

Doesnt this new law inhibit rapid turnover tho? Since it takes 5 years to get the full deduction of an employee’s salary, there is an incentive to keep the employee around. OTOH, the souless bean counters who want quarterly (if not shorter) time horizons, will simply decrease starting salaries and use other methods to be net zero. If they do shaft the software engineers, then the converse is true-no employee should s…

Not clear to me that this is true. The expense was incurred, they just claim it over 5 years. It's not clear that the same employee is required to be there in subsequent years to claim the expense from year 1 in year 2.

It doesn't really matter how many devs you have in any given year.

What 174 does is make software a capital expense with no choice in how it gets depreciated over time. It's like having to expense the electricians wages during factory construction over 5 years.

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

#345

Post by hintymad »

jncfhnb wrote: post #335
hintymad wrote: post #332

Does Section 175 apply to other professions? For example, if I hire a full-time handyman for my office, does their salary count as a deductible cost? Sorry if this sounds naive—I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work. It seems logical that either all labor costs should count as costs, or none should. If different types of jobs ar…

If you hire someone to build you an office or office furniture, you are creating a long lived asset so it is capitalized If you hire someone to clean your office, you are not creating an asset so it is expensed Building software is generally creating a long lived asset

Thanks. Capitalized expense means the expense can be amortized over years? If so, the short-term profit can be higher than expensed cost? That sounds bad in this context as more profit means more tax. However, the OP seems to argue that capitalized expense is good for tech companies.

In the meantime, the parent comment says "Depreciating means that if you pay an engineer $200k in a year, in tax-world you only had $40k of real expense that year, even though you paid them $200k." and then "So the effect is that it makes engineers much more expensive". This seems to also imply that capitalized expense is worse for tech companies?

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

#346

Post by LastTrain »

garrickvanburen wrote: post #262

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?

Now is the time to strike because there is a very easy to manipulate person who will change things like this on an emotional whim.

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

#347

Post by gortok »

The SSBA (Small Software Business Alliance) was set up by Michele Hansen -- co-founder of Geocodio, http://geocod.io (and the SSBA is now run by another person) for this reason -- to raise awareness in Washington DC of the issue with the Section 174 Capitalization changes and the efforts to repeal it.

https://ssballiance.org/

She has also spoken about it on podcasts: https://www.youtube.com/watch?app=desktop&v=oF-xsDd1A4o

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

#348

Post by tomschwiha »

skizm wrote: post #163

I'm curious: what was the original argument for this special case of counting anyone involved in software dev as an asset instead of an employee?

The idea is, that there is some asset generated by the devs (software, etc.). Same as a machine that you buy and that generates revenue over time (and loses value over time). So the work result (the software) of a dev generates revenue over time and the costs are spread over time as well.

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

#349

Post by MrDarcy »

jncfhnb wrote: post #335
hintymad wrote: post #332

Does Section 175 apply to other professions? For example, if I hire a full-time handyman for my office, does their salary count as a deductible cost? Sorry if this sounds naive—I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work. It seems logical that either all labor costs should count as costs, or none should. If different types of jobs ar…

If you hire someone to build you an office or office furniture, you are creating a long lived asset so it is capitalized If you hire someone to clean your office, you are not creating an asset so it is expensed Building software is generally creating a long lived asset

This comment is misleading and misses the point.

When you buy an office chair you capitalize the asset on your books.

The chair manufacturer in turn pays wages to a person to construct the chair. Those wages are not capitalized, the manufacturer deducts them fully when they are incurred.

The main issue is that “software manufacturers” must now depreciate those same wages over 5 years. Which is unique and does not pass a basic common sense sniff test.

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

#350

Post by phkahler »

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 are software engineers different than other people on payroll? Can't they be deducted the same way as accountants or other functions?
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