This will stay because it’s a barrier to smaller companies and nothing significant for larger companies that make political donations
Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
391–400 of 957 posts
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#392A 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…
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.
We all do this at the conclusion of every successful job interview. And performance review. And budget review. IMO it's a reasonable floor on the value engineers produce: if you produced an asset worth less than your salary you should be concerned for your career.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#393Is this for taxpayers or citizens? Not all taxpayers are citizens.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#394Can someone steelman the positives for me? I don't see how it's anything but pure regulatory capture favoring established tech firms. A small company ramping up revenue simply can't handle this amortization while a large, established company can. That being said, I do think there's a little sloppiness in what is categorized as "R&D" in the software development. Is code maintenance R&D? Bug fixes? Performance improvem…
Generally the US requires valuable assets to be depreciated and amortized over their useful life. This is arguably a fair way to tax businesses with fewer downsides than many alternatives. Consider a different situation, a business pays employees to build a residential home for $275k total, the land is worth zero in this simple example. Currently they can deduct $10k a year for 27.5 years to depreciate the home, even…
I believe that this is and similar example are missing a very important point in the narrative: in case of developing land to build a building, you will still have the possibility to deduct 100% of the salaries of the construction workers.
Those construction workers will build the building (= the product) on top of the land that you acquired (another asset) which means you are assets become the land itself and the building. Land and building will have their own asset value (purchase price or evaluation) that will be used for over X years.
As far as I understand as an European watching this from abroad, they are trying to evaluate the value of the asset (= code, the product) of a startup by using development costs as a proxy.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#395Earlier quoted context omitted.
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?
Generally speaking, yes, you can immediately deduct the non depreciated value. Most machines will be scraped, giving them a "scrape value". You would immediately deduct the difference.
In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#396A 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 is not entirely true and i’ve seen the exact same comment regurgitated with the same exact numbers for the past two years. I am not in really in favor of section 174 but i’m tired of seeing misinfo. I have discussed this with a CPA multiple times and its simplified and blown out of proportion in a way that you can’t actually have a conversation about it
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#397A 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 is not entirely true and i’ve seen the exact same comment regurgitated with the same exact numbers for the past two years. I am not in really in favor of section 174 but i’m tired of seeing misinfo. I have discussed this with a CPA multiple times and its simplified and blown out of proportion in a way that you can’t actually have a conversation about it
…could you expand on what part is inaccurate?
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#398I'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.
I guess I'm preaching to the choir here, but a machine has re-sale value outside of what it produces, which is what actually makes it a "asset". This argument could be applied to any knowledge worker that makes a spreadsheet since you can sell the spreadsheet.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#399Earlier quoted context omitted.
In my simple mind, if software has been "released" it is no longer R&D, and "bug fixes" (which should include continuous improvements such as your example) are not research. I may be way, way wrong though.
That seems too exploitable to pass muster in the court. If you release Beta 0.0.1 of your software after 2 months of development then spend the next 5 years getting it up to version 1.0 that's clearly a development effort not a maintenance effort.
Is it?
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#400What other employee roles pretty directly produce assets that often have value for the company across multiple tax years?
What kinds of workers who produce IP?
What kinds of workers who build equipment retained by the company (not quickly sold)?
And how are taxes for those employee expenses currently handled?