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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)

#521

Post by mbesto »

naikrovek wrote: post #205
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…

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…

Just to give you some perspective...this comment:

> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share.

Is the equivalent of a finance person saying to a developer "can't you just hire more developers and we can build our product faster". In other words, it's not that simple.

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

#522

Post by throwanem »

rbultje wrote: post #506
throwanem wrote: post #499

Earlier quoted context omitted.

So because this is something we can do now and we want to do something now, we do this?

The opposite of what you're saying is "perfection is the enemy of progress", so let's move past them. I'm asking for more than "this is not the way". What is the way? How will we do this? This is critical, and we've failed to do anything since early 2022. Democrats are clearly not at all interested. My (Dem) congressman responded directly to my enquiry with "fixing section174 just wouldn't be good optics". I agree re…

Not in a way that makes us even easier to hate, for a start. You really want a big noisy political carveout in what is already being called the largest upward wealth transfer in history? You want to find out what it's like to be in a line of work that has the reputation for having to steal from the American people to survive? We have enough of that reputation already.

If you want a better answer, tell me who our friends are in Congress this decade, and how much it matters. From what I see, the answers are "few" and "little." The Americans who don't blame us for giving Trump the country blame us for not giving him enough of a platform. The appearance of demanding favor on our part at such a moment seems unwise, but that moment does sufficiently explain why we find ourselves facing the aforementioned paucity of well-wishers.

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

#523

Post by [deleted] »

vkou wrote: post #502
throwanem wrote: post #499

Earlier quoted context omitted.

So because this is something we can do now and we want to do something now, we do this?

Supporting this is making a deal with the devil because he offered you two bottles of whiskey. Its penny-wise and pound-foolish.

[deleted]

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

#524

Post by floxy »

eadmund wrote: post #448
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…

> what is the corporate tax rate? 21% > It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer. Which is a problem if you don’t have the money to pay the tax. Let’s combine your and the parent’s examples: 1 principal engineer @ $300,000/year; 3 engineers @ $200,000/y…

It seems like the amortizing over the lifetime of a capital asset is what is tricky for software, not that some businesses operate with very small profit margins. For the example given, that must have been a hyper-competitive area; continued yearly improvements of $900,000 was not enough to increase sales. So at year 6 the owners got rid of the engineering staff. What happens to revenue? Did all the competitors die at year 5, and so years 6 through 25 still have $1 million in revenue? Or with no continuous improvements, did sales and revenue drop to $0? In one case it seems like the right asset lifetime for the software could be 20 years, and the other case, 1 year.

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

#525

Post by xmprt »

throwaway7783 wrote: post #309
naikrovek wrote: post #243

Earlier quoted context omitted.

> it massively increases that depends entirely on how much the business is taxed. every $1 deducted from taxable income is NOT $1 saved in that business' tax payment. It's much more like $0.10-$0.30 saved in taxes.

Whether it is $1 or $0.10, it is non existent for young software companies. If I'm penniless (after real expenses), where will I get those 10 cents to pay the taxes? And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.

As far as I know, this law has been a thing for a couple of years now. How has your company been dealing with it so far? You say "this law WILL" but if it's already in effect, then it means that you would have already had to find a way to pay taxes for the last few years right?

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

#526

Post by rbultje »

zajio1am wrote: post #188
jsherwani wrote: post #70

For folks that don't know the background on this, here's a layperson summary: - A business is usually taxed on its profits: you deduct your revenue from the cost of producing that revenue, and the delta is what you are taxed on. - In software businesses, this usually means if you spend $1M in software development to develop a web app, and it makes $1.1M in that year, you'd get taxed on the $100K profits. - However, a…

> Assuming the tax rate is 50% Which is not(?). According to https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St... , federal corporate income tax rate is 21%, + additional <10% for state level, not sure about local level.

One of the reasons small businesses have been hit so hard with this is because for then (when incorporated as LLCs), their tax rate is 37% + state + local. I live in NYC and my LLC has a combined tax rate of 50%.

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

#527

Post by fuzztester »

addaon wrote: post #190
ASalazarMX wrote: post #118

Earlier quoted context omitted.

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. 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…

how about all the projects that fail all over the world, all the time? what is the material value of those?

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

#528

Post by GenerWork »

IG_Semmelweiss wrote: post #480
Volundr wrote: post #232

Earlier quoted context omitted.

Forgive the naive question, but is this different than other payrolled employees? So for normal employees you get the deduct the year it's paid, but for some reason for software developers you have to amortize it?

"Other payroll employees" is doing a lot of lifting. The question is really, payroll is made up of builders, vs nonbuilders. Are devs different from other builders? The dirty secret is that they are not. Ford engineers, P&G food researchers, and architect salaries are capitalized just like Software development costs. But, in the case of software development, only those builders are getting a nice subsidy. A world whe…

>But, in the case of software development, only those builders are getting a nice subsidy.

This is why I can't support re-implementing Section 174. Software engineers are now being treated in the tax code like everybody else, and they don't like that change.

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

#529

Post by Muromec »

jandrese wrote: post #368
anigbrowl wrote: post #237

Earlier quoted context omitted.

The answer to all these questions is yes, i don't see the point in trying to obfuscate this with artificial complexity. What about HR, etc who use excel documents? IF they are using it rather than developing it, no. If they put in 5 hours a week writing code, yes for those 5 hours. This isn't hard.

So now every engineer has to record how many hours each day were spent doing "software development" vs. "software maintenance"/"overhead"/"etc..."?

You just add a row to spreadsheet at the end of the month. 30% maintenance, 70% development or whatever

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

#530

Post by rkagerer »

echelon wrote: post #496
bravesoul2 wrote: post #492

Earlier quoted context omitted.

ELI5: why is this blowing up on HN this particular week in 2025. Is there a trigger? As it has been known about for a while.

It's actively being discussed in Congress and is a part of OBBBA. " H.R.1990 - American Innovation and R&D Competitiveness Act of 2025 " https://www.congress.gov/bill/119th-congress/house-bill/1990... > A bipartisan bill reintroduced in Congress last month could offer long-awaited relief to small tech companies hit hardest by an obscure federal tax change — one that many founders say is threatening their survival. >…

I'm confused. The requirement to amortize software engineer expenses was introduced in Trump's first term, but now he wants to revoke it in OBBBA? But only for 5 years?
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