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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)

#751

Post by kgwgk »

miroljub wrote: post #749
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 i…

Exactly. That’s why when a company builds a factory it’s considered a capital investment. Because it’s built by slaves. It’s not like the workers are being paid for their labor or anything.

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

#752

Post by echelon »

Plasmoid2000ad wrote: post #725
bunnie wrote: post #637

Earlier quoted context omitted.

I keep seeing an objection in this thread along the lines of "what make software so special that it deserves a tax deduction". Correct me if I'm wrong, but if a company hires someone to say, mine coal or brew beer, the expense of those employees is an expense any company can claim a full tax deduction on. If you're a line chef or wait tables, your salary is tax deductible to the restaurant. So it's not that we are as…

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…

Unfortunately by trying to "fix" this, they've caused massive US software developer layoffs. So even less tax revenues. And an even weaker economy.

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

#753

Post by jonfw »

rtpg wrote: post #563
yojo wrote: post #220

Earlier quoted context omitted.

The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive. If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.

I don't get this. You speculative spend 1 million dollars on a new thing. It fails. In one universe you get to deduct 1M from your profit in year 1. In another you get to deduct 1M from your profit, but over 5 years. I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse? The cynical thing might be that t…

It increases the real cost of engineers. The government is keeping that money interest free, which means the company is losing the time value of money.

In addition, it gives companies less flexibility to manipulate their tax burden and cash flow, which makes engineering a less appealing investment to the bean counter.

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

#754

Post by echelon »

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.

> strengthen the quasi-monopoly of established players.

When are we going to break the majors up already? Google should be like seven different companies. YouTube is bigger than Netflix for Christ's sake.

Demand antitrust enforcement!

There's so much value pent up and wasted in Google today that it'll be worth more as divisible parts. They're practically giving half of the value away for free and wasting it on implementing the same thing four times before cancelling it.

And Apple and Amazon...

These giants are basically stifling the US startup ecosystem and putting a valuation cap on innovation. They're also ripping apart other industries by moving in and undercutting costs with subsidized offerings detached from the underlying economics. They're like invasive species destroying the ecosystem, eating up everything, completely immune to competition. And if that's not reason enough for you, they're putting massive wage pressure on our profession.

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

#756

Post by Thorrez »

throwanem wrote: post #589
vkou wrote: post #502

Earlier quoted context omitted.

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

I hadn't seen they were asking for a retroactive carveout! For eight years. A decade's worth of massive, post facto tax clawback? I don't know who thought this was a good idea, but they really must not love YC or Hacker News, to put those names on the public face of this...

While the law with the tax change was passed in 2017, that specific change didn't go into effect until 2022. So it's 3 years of retroactive carveouts (2022, 2023, 2024).

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

#757

Post by _heimdall »

OneDeuxTriSeiGo wrote: post #119
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 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…

> This [1] is the only definition the code actually give.

Like most of our tax code, its overly complicated by unclear or incomplete codes.

The IRS will give guidance with examples, but those examples are still incomplete.

Ultimately our tax code always comes down to the filer doing whatever they (a) think they can get away with or (b) are willing to defend if they get audited.

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

#759

Post by _heimdall »

echelon wrote: post #191
zacharycohn wrote: post #141

Earlier quoted context omitted.

Just to drive the point home very explicitly: That means, in the given example above, you are able to deduct $180k that first year instead of $900k. That gives you a profit, from a tax perspective, of $820k. But you only have $100k of actual dollars. Good luck paying your taxes!

This seems like the biggest reason behind the mass layoffs, not the end of ZIRP.

How do you land on likely causality here?

It sure seems like it could be related, but I don't know where to begin finding what actually caused layoffs across multiple companies.

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

#760

Post by tekknik »

neilv wrote: post #343
codingdave wrote: post #155

Signing a letter is fine, but will not have the same impact as phone calls made to your representatives. https://5calls.org/why-calling-works/ You don't need to use that site - the point is that if you want to have the loudest voice, make some calls.

> Other kinds of messages take longer. Emails have to be manually read and sorted. Faxes have to be digitized and emailed. [...] By contrast, congressional staffers tally phone calls right away. Golly. Is this a problem? Hasn't this been solved already? Do they want to solve it? How much do they want to solve it, in terms of United States Dollars? This is now easy for many HNers to build, with the hard parts now done…

Please no AI interpreting sentiment in emails, the error rate / hallucinations at that scale would be dangerous.
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