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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)

#551

Post by ndriscoll »

jandrewrogers wrote: post #384
ndriscoll wrote: post #304

Earlier quoted context omitted.

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 prote…

It's not really "weaponizing the tax code because of an ideological aversion"; it's more:

* It makes sense to tax capital assets as such.

* If companies do R&D and think the results are valuable enough to be kept secret, then obviously they're an asset.

* Depreciation is because real-world assets actually require ongoing maintenance or become worthless over time, but information does not.

* Finite-term IP grants (e.g. copyrights/patents) do become worthless over time, so a depreciation schedule makes sense.

* Trade secrets never expire, so it doesn't make sense to depreciate them. If they never get out, they remain an asset forever. So their development shouldn't be deductible. If they do get out, the company could release all of their (now presumably useless) info on it then for the deduction from their development.

The point about finding trade secrets to be dubious is that it seems natural to tax them as an everlasting capital asset (since that's what they are), and I don't see why we wouldn't do that since society doesn't eventually get the benefit of that knowledge, so incentivizing it runs counter to the purpose of IP law. Why would a knowledge economy provide a tax deduction for developing knowledge we don't eventually get?

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

#552

Post by throwawaymaths »

fsckboy wrote: post #459
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 financ…

yeah but a high risk venture going from zero has exactly this problem: you might fail to build your product, and crazy enough the weight of having x% tax may have made the difference.

you should be able to choose if you'd like to do immediate accounting or amortized accounting.

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

#553

Post by OneDeuxTriSeiGo »

anigbrowl wrote: post #237
OneDeuxTriSeiGo wrote: post #119

Earlier quoted context omitted.

So it applies to software engineers but under what definition of software engineer? This [1] is the only definition the code actually give. > (3) Software development > For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. 1. https://www.law.cornell.edu/uscode/text/26/174 ----- Is a test or QA engineer c…

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.

Okay so your random HR person at a nontechnical small to medium sized business now is on the line for developing spreadsheets to manage scheduling.

OR they need to maintain a set of activity codes and a timesheet outlining how many hours (or partial hours) each week are spent on what types of tasks.

It's unnecessary complexity if you want to be in actual compliance with the tax code vs just guessing whether XYZ task is on one side of the line vs the other and hoping it doesn't come back to bite you later.

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

#554

Post by pj_mukh »

floxy wrote: post #507
throwaway7783 wrote: post #312

Earlier quoted context omitted.

I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue. Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)

Here are some charts and tables showing Amazon income taxes: https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-...

Incidentally, should we really count "income taxes" as something "Amazon pays"? Amazon doesn't pay income taxes. Amazon employees do. The fact that Amazon conducts the transaction via withholding seems irrelevant. It's the employee losing the money.

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

#555

Post by [deleted] »

mediaman wrote: post #307
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…

You're bringing up the question of "what is a fair tax rate," which is reasonable. The questions of this legislation, though, are different: Should we incentivize companies to hire corporate executives instead of engineers? Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concen…

[deleted]

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

#556

Post by gnopgnip »

thinkindie wrote: post #394
gnopgnip wrote: post #231

Earlier quoted context omitted.

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 bu…

Employee salary is part of the capitalized cost and depreciated.

Land value is generally not a deductible expense at all, and as such it is not depreciated. Some related costs like property tax, insurance, mortgage interest are deductible when paid though

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

#557

Post by OneDeuxTriSeiGo »

axus wrote: post #297
EnderWT wrote: post #198

Earlier quoted context omitted.

The IRS released guidance back in 2023: https://www.irs.gov/pub/irs-drop/n-23-63.pdf It starts on page 23. Plenty of analysis online by tax firms but I'll quote from this one: https://insightplus.bakermckenzie.com/bm/attachment_dw.actio... > Generally, activities treated as software development for section 174 purposes include, but are not limited to, the following. • planning the development of the computer software…

What a wonderful sales pitch for a timesheet software feature. Track non-software-related work for expensing in the current tax year.

This is fairly standard for a lot of larger companies and for companies where your work is contract work (see defense contractors, legal firms, architecture and civil engineering firms). You have to do line item billing on costs for a given contract so you have to track how many hours are spent to do whatever labor needs done.

The issue is that this is a lot of unnecessary complexity for orgs that aren't doing that kind of work.

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

#558

Post by sitkack »

anigbrowl wrote: post #540
Dig1t wrote: post #442

Earlier quoted context omitted.

How is an HR person writing a script to do their HR work better considered an R&D expense?

Scripted automation is quite literally development of IP. It's an asset that belongs to the company and will be counted as such on its balance sheet.

Anytime someone has a good idea, it should be depreciated over 5 years? Why is software special? It is all just the composition of simple machines.

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

#559

Post by fuzztester »

PaulDavisThe1st wrote: post #548
fuzztester wrote: post #546

Earlier quoted context omitted.

>Trump wanted a large tax cut. To make the numbers look better (notably the CBO reporting), Congress looked for ways to increase revenues. so is congress the slave of trump? not clear what is going on here. are the legislature and executive branches not independent?

> are the legislature and executive branches not independent? I am not sure how this can be a serious question right now, in 2025. However, in 2017 the capitulation of power and authority by Congress was less obvious. What was still true was that the Republicans who controlled Congress and the President all wanted a large tax cut for higher income Americans, and were thus aligned on the goal. Since the President does…

>I am not sure how this can be a serious question right now, in 2025.

it was a serious question.

I did know that the republicans are in the majority in both the lower and upper houses, after the recent US election.

but was not sure if that was the only factor involved.

I am not from the US. just an interested observer.

hence my question.

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

#560

Post by rtpg »

throwaway7783 wrote: post #275
actinium226 wrote: post #183

Earlier quoted context omitted.

Only if you assume that the 900k in costs is exclusively the salary of 5 engineers. Realistically you will employ other people and have overhead costs like rent, etc., and I assume that other non-salary costs (health insurance, etc.) aren't included (b/c I assume health insurance, like rent, is a company-wide overhead cost and that companies aren't expected to carve out what portion of that is going to the software f…

1M eng salaries, 5m revenue, 4M other costs. Today I am cash flow neutral at 5m revenue, but with this I'm paying taxes on 800k "profits", which don't exist anywhere but on paper. But I have to pay the taxes in real dollars.

This is going to sound silly but you paid 800k in profits, but now have 4 years of banked costs you can use to _reduce_ your profit margin.

So you pay taxes on 800k profits, but then each subsequent year you reduce you profit by 200k, even though you don't have 200k leaving the door.

If 1M eng salaries was your stable state, then after several years you're... going to have 1M in costs to subtract from your profit! The stable state is the same!

I'm not going to argue about the capex change being "good", I do think it's worth highlighting that for large enough companies you're now looking at a different flavor of tax flow. Amortizing your costs over 5-10 years is something people like doing for other costs after all.

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