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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)

#451

Post by chermi »

floxy wrote: post #289
chermi wrote: post #256

Earlier quoted context omitted.

Thanks, this is the closest thing to making sense. But it still doesn't make sense. Like you said, this is a pretty weird characterization of software. I guess it would make sense to lawmakers who have no idea how it works. Combine that with the fact the lobbyists pushing this are 99% representing big tech and you start to get a picture of how this happens. Warning- brain dump not directly related to topic, read at y…

>The fact that maintenance is required belies the perspective that it's a capital asset. I'm not following this. Factories, ships, stamping presses all require lots of maintenance and up keep.

You're right. I was focused on the idea that for software to be taxed as a capital investment there had to be a time when it was considered a finished product. Like building a tractor. I guess the analogy then is how the tractor builder is taxed when fulfilling warranties. I suppose tractor business can expense as R&D work that goes into processes that make it easier to fulfill warranties.

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

#452

Post by hermannj314 »

jweir wrote: post #447
hermannj314 wrote: post #408

Earlier quoted context omitted.

[flagged]

You know not what you speak of. I am small developer without funding. For every developer I hire I pay tax on 90% of their wages in year 1. So, if I hire a 200k a year developer, I have an increased tax liability of 180k. That works out to paying about $75k ~ $85k. So my 200k developer becomes an 285k developer. Now, eventually I could regain that cost, or I could do like I know of a few companies and commit tax frau…

[flagged]

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

#453

Post by robocat »

sh34r wrote: post #357
teeray wrote: post #133

Earlier quoted context omitted.

> under what definition of software engineer? Probably a broad enough definition to net the US Government the greatest tax revenue possible for the effort to enact this.

A sufficiently idiotic tax scheme such as Section 174 can destroy far more income tax revenue than it collects, by destroying jobs and small businesses, and knocking high earners down a tax bracket or three. Section 174 isn’t doing much to tax FANG companies. Apple has all their profits in their Double Irish Dutch Sandwich racket. Amazon cooks the books to appear unprofitable on paper, in a manner that would make Hol…

> I think Zuck, the PayPal Mafia, and the blood-boy cabal bribed some Congresscritters to kill off what remained of their competition.

What's with the craze for finding conspirational incentives?

There's a repeatable pattern where commenters hallucinate an unreasonable incentive for everything.

Motivations are difficult to discern (see courtrooms), and it is a modern vice to try and analyse incentives, but too often the cause-and-effect imaginations are not even reasonable guesses, but are just pure fiction.

My best guess (based off word choices made) is that we all love to create new stories/narratives, that fit into our personal tribal stories.

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

#454

Post by throwaway7783 »

addaon wrote: post #385
throwaway7783 wrote: post #282

Earlier quoted context omitted.

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.

If we are being pedantic, sold or rented. I think the issue is on how the concept asset depreciation is applied blindly, as if dev salaries every year is the asset value every year. Unlike other asset classes, there is no easy to way value software beforehand, because you are not buying it from some market.

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

#455

Post by Atreiden »

So this is a huge problem, and one worth tackling, but I worry very much about the timing of this post in the context of the bill being brought before the Senate now.

We should not implement horrific legislation just because we agree with a single provision. Calling your representatives is the right path, but you MUST be explicit that you do not support the current bill being brought forth that addresses this.

Here are a few pieces for context, if you're not informed about what's in this bill: https://thehill.com/opinion/finance/5339440-the-big-beautifu... https://archive.is/No4o9

Please, I beseech my fellow Americans, do not vocalize any support for this bill. We'll correct the ills of the 2017 administration in time, but this is not the way to do that.

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

#456

Post by e40 »

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…

> you have to depreciate that over several years (5 in this case).

15 years in the case of foreign developers.

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

#457

Post by soneca »

hermannj314 wrote: post #452
jweir wrote: post #447

Earlier quoted context omitted.

You know not what you speak of. I am small developer without funding. For every developer I hire I pay tax on 90% of their wages in year 1. So, if I hire a 200k a year developer, I have an increased tax liability of 180k. That works out to paying about $75k ~ $85k. So my 200k developer becomes an 285k developer. Now, eventually I could regain that cost, or I could do like I know of a few companies and commit tax frau…

[flagged]

My understanding is that the salary of other types of workers do not follow this rule.

If that’s correct, then the section means software developers are actually special snowflakes treated differently by the tax code

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

#458

Post by jweir »

hermannj314 wrote: post #452
jweir wrote: post #447

Earlier quoted context omitted.

You know not what you speak of. I am small developer without funding. For every developer I hire I pay tax on 90% of their wages in year 1. So, if I hire a 200k a year developer, I have an increased tax liability of 180k. That works out to paying about $75k ~ $85k. So my 200k developer becomes an 285k developer. Now, eventually I could regain that cost, or I could do like I know of a few companies and commit tax frau…

[flagged]

The guru states to the path to happiness is never argue with fools.

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

#459

Post by fsckboy »

throwawaymaths wrote: post #225

the real question is why is r&d for startups in general amortized in the first place? doesn't this discourage startups pursuing risky hard science ventures?

the reason property plant and equipment is amortized over time instead of expensed right away is to match up the tax deduction with the profit. If building a factory and filling it with robots will produce cars over a 10 year period in the future, it makes sense to subtract those costs over the same 10 year period. Matching profits with expenses is essentially why accounting was invented in the first place, so financial statements would show smoother and continuous operation of a smooth and continuous company, instead of big peaks and valleys as if something had happened.

With software companies, developing software (like Microsoft Windows) allows you to profit from that software over the next 5 years. Matching profits with expenses makes rational sense.

Frequenty, politicians use the tax code to implement popular social policy. This way they can reward things and groups they want to, and still be able to say "we aren't giving subsidies, we aren't giving people cash, we are simply giving tax deductions and tax credits" These sorts of programs are, across the board, more distorting of the economy and make the tax code incomprehensibly more complex. But matching expenses against profits? makes perfect sense.

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

#460

Post by the_arun »

Why payment to Software Engineers is not an expense for the current year? Is it because of the size of the expense? or some other rule that I am missing. Those employees are also paying taxes to those salaries as well. Isn't it? What is the catch? I'm confused.
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