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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)

#381

Post by sh34r »

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…

From a more left-wing perspective, it certainly doesn’t feel like a coincidence that Section 174 kneecaps anyone who’d try to compete with the FANG trusts. I’m sure an oligarch paid good money to insert this rubbish into the tax code. Well, relatively good money. American politicians are shockingly cheap to pay off. Probably only took $10k each, to convince them to destroy billions in economic value.

It’s a rare thing these days: a law everyone can hate, regardless of ideology. You don’t have to be a Laffer curve believer to recognize that you can design tax schemes that would destroy competition and/or cause excessive deadweight loss. After all, if all taxes were created equal, we could just replace them with a money printer.

Hopefully it doesn’t take three years to reach a consensus on these moronic tariffs, which are far more destructive to the overall economy.

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

#382

Post by tossandthrow »

ashwinsundar wrote: post #337
tossandthrow wrote: post #252

Earlier quoted context omitted.

I am not conflating, but the law is. Obviously it would be better to have an appraisal of the software - I reckon law makers see the cost of producing ad an ok proxy. Btw,this is how it is done in many construction projects also. Like bridges, budings, etc.

I don't know how you're supposed to value software. I just reread your original post - picking 10% out of thin air doesn't make much sense either. Software is more like a blueprint for a building, it's not the building itself. How much is a blueprint worth? If 100 architects spent a year on it, does that mean the blueprint is worth 100 x salaries? It might actually be worth nothing, if the blueprint asks the construc…

I really agree in all your points, and the the 10% would be the proposed practical middle ground - but it is neither a good model.

I don't know how to tax this.

But I can identify the issue: You can channel your revenue into a non-taxible assets that you can bring into the next accounting period tax free.

Regardless of this is stocks, bonds, gold, unsold inventory, or IP, that is not fair.

I would hope for someone to device something that is fair and easy to understand. And then I would hope for them to get it through to the politicians.

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

#383

Post by enceladus06 »

We should not have carve out for software R&D or anything else.

Business taxes as a whole are stupid and a convoluted mess, just let businesses make as much money as possible and roll with it.

It would be much more efficient to tax consumption at a flat rate, and give a variable rebate for elderly/children/whatever.

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

#384

Post by jandrewrogers »

ndriscoll wrote: post #304
jandrewrogers wrote: post #287

Earlier quoted context omitted.

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.

That's why I didn't just include code; if you produced valuable design docs as part of your work, that was part of your research too. I'm generally skeptical of the societal utility to offering any protections or special treatment for trade secrets though (the entire point of patents/copyright is to incentivize people to share these things; it's insane to also protect their secrecy), so that no doubt affects my think…

That is making assumptions that aren’t based in reality. Serious software R&D stopped relying on patents and copyrights years ago because they are effectively non-enforceable in many cases.

A significant percentage of algorithm and foundational computer science R&D in software is now protected exclusively via trade secrets. There are no other practical options. This wasn’t always the case but all other forms of protection have steadily eroded over the last couple decades.

Weaponizing the tax code because you have an ideological aversion to trade secrets doesn’t seem fair to me.

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

#385

Post by addaon »

throwaway7783 wrote: post #282
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 price at which it sells the said software? Aka profits after expenses?

> The price at which it sells the said software? Aka profits after expenses?

A vanishingly small percentage of software is sold.

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

#386

Post by CodesInChaos »

jollyllama wrote: post #235

Why is it that tracking expenses as R&D is bad? Where I work, we started tracking our R&D hours compared to other work recently, and an increase in R&D hours has resulted in less tax burden. Edit: not sure why the downvote, it's an honest question. I'm not arguing anything.

Having to pay taxes earlier hurts liquidity. This is particularly problematic for small companies growing quickly, such as startups. For VC financed companies it means that they need to raise the money to pay the ta when they're still smaller, and thus have a lower valuation.

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

#387

Post by elliotec »

koolba wrote: post #323
axus wrote: post #297

Earlier quoted context omitted.

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.

Exactly. Everywhere I’ve worked, this was a quick and non-intensive collaboration between engineering management and like one finance person. It’s baked into a ton of tools already (like you mentioned, Jira) so the percentages are usually just there and eng leaders review it with FP&A twice a year.

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

#388

Post by hermannj314 »

Is lobbying for our interests how we become the bad guys?

I dont want software development to become the oil and gas industry.

More specifically, if software devs aren't creating capital assets, then what exactly is being bought during an acquisition? Don't we tell ourselves our work is building an asset that can be reused and sold. The operational aspect of our job still seems to be treated as opex.

Our entire industry is built on the belief our software is an asset. This feels like big tech wiggling for a tax break but disguised as some grass roots effort to help small tech.

I am strongly against this as the ethics feel very wrong. Our industry doesn't need tax welfare.

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

#389

Post by LamaOfRuin »

jandrewrogers wrote: post #270
ethbr1 wrote: post #226

Earlier quoted context omitted.

If we had specifically defunded highway patrol that was net-revenue-positive, yes. Republican defunding of the IRS is literally insane: reform by cutting enforcement. - It rewards people who cheat on their taxes. - It costs the government more money that it saves, because IRS investment is net revenue positive. But then, the modern Republican party seems more concerned with being the party of 'law(s I agree with) and…

People greatly overestimate the amount of material cheating that happens, especially among large companies and the wealthy. I used to work for a Federal audit organization and almost all of the recoveries had a root cause in sloppy compliance and record-keeping practices rather than intentional malfeasance. It is broadly recognized as optimal that the recovered money should be several-fold the direct costs spent to r…

>AFAIK, the increased spending at the IRS did not lead to concomitant offsetting recoveries. This is a predictable outcome, the amount of enforcement activity has been pretty finely tuned for decades to optimize ROI. Most of the recoveries come from changing focuses on compliance to areas that haven’t seen much enforcement activity in many years. Fighting entropy basically.

AFAIK, all the data shows exactly the opposite.

https://news.harvard.edu/gazette/story/2023/07/turns-out-irs...

https://www.irs.gov/pub/irs-pdf/p5901.pdf

(There are many more studies from various outside organizations, as well as other non-partisan government bodies outside the IRS concluding similarly)

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

#390

Post by patmcc »

awkward wrote: post #341
jncfhnb wrote: post #333

Earlier quoted context omitted.

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,…

There are businesses that will build a big custom piece of machinery. Think a factory or a mine. That may last for 20 years, but require workers to operate, maintain, etc.

This is handled in existing tax law; building or improving a capital asset is amortized, repairing or maintaining it is expensed. It can be a pain in the butt, this is why accounting is not a trivial profession.

We could (and I think should) treat software the same. Some software engineer work is absolutely creating a capital asset. Some is absolutely high-priced janitor work. It makes sense to allow for both with your tax code.

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