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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)

#741

Post by projektfu »

thaumasiotes wrote: post #206
jgalt212 wrote: post #54

As a business owner, I've been adversely impacted by this. I still can't wrap my head around how this is legal or sustainable. If I buy $1MM of plant and equipment, I may not be able to expense it all in year 1, but I can relatively easily get a loan to finance the purchase of such--and manage my cashflows. The same is not for devs. I cannot easily get a loan for $1MM in dev salaries. In my own case, I don't need the…

Question: say you buy the equipment personally and then rent it to your business. What does the tax treatment look like?

A common arrangement is for a closely held corporation to rent its space from another corporation or LLC held by the same owner. This allows the asset to be protected from liability as well as simplifying accounting by splitting it into two businesses, the core business and the real-estate business. Tax-wise, it's a wash, if the income passes through to the same owners.

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

#742

Post by _lex »

I've been working on a project called x174 to deal with this disaster. Think of it as a bugfix. Will reach out

Btw - this sort of project is what my startup does - we spin out autonomous projects - that could be companies - that provide social good and solve otherwise unsolvable problems.

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

#743

Post by rbultje »

conception wrote: post #583
rbultje wrote: post #489

Earlier quoted context omitted.

> We'll correct the ills of the 2017 administration in time How? We have - at times - had democrats in charge since 2017 and they did nothing to resolve this either. We appear to be waiting for flying pigs.

Except in 2024 when the house passed a bill that included repealing it.

It didn't become law (no 60 votes in senate), after Schumer sat on it for 6 (!) months. And there were earlier attempts to fix this, for example at the end of 2022 using budget/reconciliation - like what the Reps are doing here; but that was blocked by progressives because of "bad optics".

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

#744

Post by throwawayffffas »

Wait, I have questions, you are selling software or services with the software you make, right?

The dev costs are costs related to the thing you are selling, so they are costs of goods no? So they should be deductable regardless, no?

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

#745

Post by projektfu »

nikkwong wrote: post #517
PaulDavisThe1st wrote: post #429

Earlier quoted context omitted.

> 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.

If the machinist is doing r&d, it's essentially the same. Suppose you pay a machinist to build parts for a new machine. This cost would be capitalized. But if you pay them to repair a machine, it's expensed.

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

#746

Post by lores »

rbultje wrote: post #739
Plasmoid2000ad wrote: post #725

Earlier quoted context omitted.

This wasn't my first impression of this, but the more I heard this dicussed the more I'm forming an opinion that there might be some intentional parts of this that while maybe not being good, make sense from a certain narrow perspective. My assumption is, if tax folks in the US were looking Jealously at US companies with large Multinational presence declaring a lot of their profits abroad. They might have noticed tha…

If the issue is with general tax compliance of large multinationals, then congress should have done something about that. This tax rule has hit small software businesses particularly badly, so much so that it'll practically strengthen the quasi-monopoly of established players.

Oh, no! Anyways. /Congress, probably

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

#747

Post by naniwaduni »

shaftway wrote: post #421
naikrovek wrote: post #221

Earlier quoted context omitted.

> That gives you a profit, from a tax perspective, of $820k. > But you only have $100k of actual dollars. > Good luck paying your taxes! a lot of people here are conflating "taxable income" and "the amount owed in taxes" for some reason. if I earn $100/year, and I can deduct $50 of that, my tax bill is not $50. It is some percentage of $50, usually a low number for businesses. (Amazon regularly pays $0/year in taxes.…

> Amazon regularly pays $0/year in taxes. They * were* able to, because they * were* able to offset the cost of developers instead of having to amortize it out over 5 years.

For Amazon, this just costs two years on the taxes. They'll still be able to claim depreciation of this year's dev work for the next four, though.

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

#748

Post by Dowwie »

I support this effort. Government should tax economic gains, not revenue. A business with $1 million in revenue and $950,000 in expenses is far less profitable than a business with $1 million in revenue and $200,000 in expenses. If both were taxed on their $1 million revenue, the first business would be in a dire situation.

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

#749

Post by miroljub »

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…

The reasoning here is completely flawed. You don't buy a software dev, you rent him. His salary is an operational expense, that should be deductible in a year it was paid.

Now, let's imagine a company buys a slave. It's one time capital investment, like buying a car or a machine, and you need to depreciate the cost over multiple years.

The only way it makes sense to treat software developers as a capital investment instead of an operational cost is if they were treated legally as slaves. And slavery is not legal any more. Or is it?

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

#750

Post by elbear »

Negitivefrags wrote: post #449
pc86 wrote: post #413

Earlier quoted context omitted.

If you pay an employee to make a chair, you 100% deduct their salary, immediately. The chair is only a capital expense if you buy it from a company that sells chairs. The company selling the chairs isn't forced to amortize the salaries of their carpenters, so implying that it's normal for companies to be forced to amortize the salaries of their software engineers is, in the most generous possible interpretation, a gr…

If you pay people to make 1000 chairs that are just sitting there, do you really think that you don’t have an asset on your books at all? This is called Inventory. It’s certainly an asset. And an asset doesn’t come into existence out of nowhere. It comes into existence because you paid money for it. And the money you pay for it is indeed the persons salary. Now sure, it’s possible to get away with not doing this, but…

What other country in the world doesn't allow you to deduct the full salary you pay your employees in one year? I've never heard of this.
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