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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)

#511

Post by Spooky23 »

JumpCrisscross wrote: post #401
jamessinghal wrote: post #373

Earlier quoted context omitted.

The IRS Guidance says this in 5.05(2), which is most relevant to software startups: (2) Computer software developed for sale or licensing to others. In the case of computer software that is developed for sale or licensing to others (or upgrades and enhancements to such software), activities that occur after such software (or upgrades and enhancements to such software) is ready for sale or licensing to others, such as…

Has the IRS actually dinged anyone for fucking with how they categorise software expenses?

They have, but they’ve fired everyone. Literally. I have a relative who was fired while testifying in court, he ended up stranded in some flyover shithole.

The real issue is the auditors will flag it.

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

#512

Post by hollerith »

soneca wrote: post #498
hollerith wrote: post #468

Earlier quoted context omitted.

Untrue: for example, if you are a lawyer employed to help a company acquire real-estate or another company (i.e., a merger) then your salary is treated the same way by the US tax code (i.e., your employer must amortize your salary). If you want to argue against the current tax code, point out that currently companies do not have to amortize the pay of executives even though arguably their work fortifies the company's…

A recruiter, or an HR person in general, do work that “fortifies the company’s ability to make a profit in future years” as you say, by hiring people that will hopefully work there for years. Same as a financial analyst implementing new processes and spreadsheets to better control money spending. One can argue that most white collar worker is investing in future profit. Sales people nurturing long sales cycles, lobby…

If a recruiter or HR worker helps a company hire 100 new employees, all 100 are free to quit at the end of the year whereas the artifacts created or improved by a developer will be the property of the company forever.

In other words, maybe it is a bad idea to treat people (employees in this case) like property even in our tax code? (I'm personally OK with software's being treated like property.)

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

#513

Post by scrollaway »

I want to propose an alternative for those here reading that are tired of the US and its administration, and are looking for an opportunity to move to Europe this year.

I am looking for US-based founders who want to make the leap and move to EU. We're doing an incubator like no other, in Brussels at the heart of the EU capital. 15 startups, 6 months hybrid program, only US-based founders. Here in Belgium, software dev is taxed for correctly, and there's a 0% capital gains tax which is super attractive for startup founders.

Everyone in the Fall 2025 cohort gets a 25% share of our take on any exits. That means by joining the incubator, you invest in 14 other startups by founders who are as crazy as you.

This was created right here on HN, in a "Who is Hiring" job post, with feedback from the ensuing community. I'm looking for a few more founders to apply before July 1st.

Deadline to apply July 1st. https://sevenseed.eu

And if you aren't interested in making a startup but just want to move, email me, I will help you get a job in EU.

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

#514

Post by soneca »

hollerith wrote: post #512
soneca wrote: post #498

Earlier quoted context omitted.

A recruiter, or an HR person in general, do work that “fortifies the company’s ability to make a profit in future years” as you say, by hiring people that will hopefully work there for years. Same as a financial analyst implementing new processes and spreadsheets to better control money spending. One can argue that most white collar worker is investing in future profit. Sales people nurturing long sales cycles, lobby…

If a recruiter or HR worker helps a company hire 100 new employees, all 100 are free to quit at the end of the year whereas the artifacts created or improved by a developer will be the property of the company forever. In other words, maybe it is a bad idea to treat people (employees in this case) like property even in our tax code? (I'm personally OK with software 's being treated like property.)

And if they create a hiring process? A interview script?

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

#515

Post by nikkwong »

epistasis wrote: post #328
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…

> 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 t…

You're advertising your rose-colored glasses strongly, my friend. In a perfect world, of course—you're correct. But hiring, project management, and resource allocation are messy endeavors, so your point only rings true under ideal circumstances. The real effect this will have on industry is a chilling effect on hiring as businesses now have to risk-mitigate because of the additional taxation burden. Further, I see this hurting small and less-well resourced companies relatively more so, as they now need to be more scrupulous over hiring.

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

#516

Post by floxy »

_aavaa_ wrote: post #509
floxy wrote: post #484

Earlier quoted context omitted.

>I don't know of a single piece of software produced which receives only bug fixes. TeX https://web.archive.org/web/20190428184722/https://texfaq.or...

Interesting. However for the purpose of this discussion it is both: A) Irrelevant since it's not being run by a for-profit corporation, the kind that would care about these tax bills. B) It's a bit of a cheat. TeX itself may be approaching an asymptote, but scientists writing papers in TeX do not use it directly or on its own. White it has created a reference upon which to build it has also externalized all that rese…

It is just a fun fact

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

#517

Post by nikkwong »

PaulDavisThe1st wrote: post #429
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…

> I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work Trump wanted a large tax cut. To make the numbers look better (notably the CBO reporting), Congress looked for ways to increase revenues. For whatever reason, they settled on software development, and devised Sec 174 to generate tax on 80% of s/w developer salaries in the first year it we…

Machinists also produce semi-durable assets. Should we depreciate the output of their labor, too? Like others in the thread, I view this as an assault on blue states or maybe to soften my vindictive tone, as an assault on those who are not his core constituents.

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

#518

Post by opello »

michaelt wrote: post #493
hn_throwaway_99 wrote: post #372

Earlier quoted context omitted.

> maintenance activities after the taxpayer places the computer software into service This is the part that I think makes this whole jig of treating software development like a purely capitalizable expense so nuts. I previously worked at a public company that wanted software developers to treat as much work as possible as CapEx - it makes you look more profitable than you actually are, which is bad for taxes but good…

> What other sort of capital expenditure has you do releases every day, or requires 24/7 monitoring? Quite a lot of them actually. If I spend $$$$ setting up a car factory with a big production line, I'm going to have people monitoring it 24/7. If I build an airport, I'm going to have air traffic controllers working 24/7. And so on. Of course, the air traffic controllers didn't build the runway, and the construction…

How exactly does the construction of an airport (runway, terminals, parking, etc.) satisfy "releases every day" during the construction? I could see if it were adding a runway or a terminal, but until at least some of the infrastructure is there it's not exactly usable to the end user, the public, as say a stand-in definition for "released."

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

#519

Post by fuzztester »

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…

>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.

what happens if an engineer leaves after the first year, or at any other time?

what happens to the calculations then?

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

#520

Post by optymizer »

waynesonfire wrote: post #497
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, after 5 years, they can deduct the entire salary.. this just seems like an incentive to promote long-term employment. Doesn't seem like a bad incentive.

Well, we had massive layoffs, so I don't think the incentives worked.
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