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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)

#761

Post by Atreiden »

rbultje wrote: post #489
Atreiden wrote: post #455

So this is a huge problem, and one worth tackling, but I worry very much about the timing of this post in the context of the bill being brought before the Senate now. We should not implement horrific legislation just because we agree with a single provision. Calling your representatives is the right path, but you MUST be explicit that you do not support the current bill being brought forth that addresses this. Here a…

> 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.

The Democratic party needs internal reform, that much seems clear to me. But since then we've had just a single term of Biden, and his administrations focus was on COVID, Ukraine, and getting CHIPS+infra bills passed.

It takes time to undo damage codified into legislation. We're still dealing with the aftermath of Reagan. But we have to stop the bleeding and take Congress back, or the size of the hill we have to scale increases drastically.

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

#762

Post by andrewlgood »

hansvm wrote: post #482
jandrese wrote: post #365

Earlier quoted context omitted.

That seems too exploitable to pass muster in the court. If you release Beta 0.0.1 of your software after 2 months of development then spend the next 5 years getting it up to version 1.0 that's clearly a development effort not a maintenance effort.

That's the reason we have courts, to cut through those gray areas.

No. That is why you have auditors who must sign off on your financial books and records. There are fairly strict rules about capitalization of software development. If it is a meaningful number for your firm, then the auditors will review in detail.

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

#763

Post by threeseed »

graycat wrote: post #621

On "Section 174" and more on taxes from Hill, Barth & King LLC at https://hbkcpa.com/insights/proposed-tax-bill-addresses-trum... is in part: Jobs Act. The bill also addresses the “big three” business tax provisions: deducting research and development expenses, 100% bonus depreciation, and loosening the rules for the deductibility of business interest. with deducting research and development expenses For more there i…

And how does this all get paid for ? It doesn't.

It massively increases the deficit and debt which in turn will have a raft of knock on consequences for the economy and the reputation of the US.

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

#764

Post by mjwhansen »

jweir wrote: post #354

The Small Software Business Alliance has been actively working on this issue since day one. https://ssballiance.org/about/engage/ And Michelle Hansen was an early organizer https://x.com/mjwhansen If you work at all in energy, the Clean Energy Business Network is also proactive in fighting for change. A couple of years ago they put me touch with Ron Wyden's staff. The Democrats are almost universally opposed to what…

Thanks for spreading the word about SSBA!

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

#766

Post by jollyllama »

CodesInChaos wrote: post #386
jollyllama wrote: post #235

Why is it that tracking expenses as R&D is bad? Where I work, we started tracking our R&D hours compared to other work recently, and an increase in R&D hours has resulted in less tax burden. Edit: not sure why the downvote, it's an honest question. I'm not arguing anything.

Having to pay taxes earlier hurts liquidity. This is particularly problematic for small companies growing quickly, such as startups. For VC financed companies it means that they need to raise the money to pay the ta when they're still smaller, and thus have a lower valuation.

Thanks for the simplified explanation. It does make me question though whether this is really fueling layoffs at larger firms like Meta and Microsoft. Why wouldn't they be fine with paying the tax hit early?

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

#767

Post by andrewlgood »

ensignavenger wrote: post #395
grogers wrote: post #314

Earlier quoted context omitted.

How does this compare to a machine that breaks and is thrown away before its amortization is complete? For the machine can you immediately deduct the remaining amount or is it required to continue to spread the value over the original time period? I would imagine software that is thrown away should be similar?

Generally speaking, yes, you can immediately deduct the non depreciated value. Most machines will be scraped, giving them a "scrape value". You would immediately deduct the difference. In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.

For clarity, it is “scrap value”

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

#768

Post by Dylan16807 »

jchanimal wrote: post #654
Muromec wrote: post #529

Earlier quoted context omitted.

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

The word “just” in your comment disgusts me

Why?

They're suggesting you spend a minute or two per month thinking about it, not meticulous tracking.

That might not be practical, but what they are describing is a perfectly good use of the word "just".

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

#769

Post by threeseed »

schroeding wrote: post #427
hermannj314 wrote: post #388

Is lobbying for our interests how we become the bad guys? I dont want software development to become the oil and gas industry. More specifically, if software devs aren't creating capital assets, then what exactly is being bought during an acquisition? Don't we tell ourselves our work is building an asset that can be reused and sold. The operational aspect of our job still seems to be treated as opex. Our entire indus…

IMO, if you lobby for a thing which does not do harm to other people, you are not the bad guy. If you do, you are. Lobbying itself is not immoral. The oil and gas industry, and the tobacco industry et al., lobbied (and lobby) for things which they know were (and are) doing harm. This isn't the case here, IMO. Code is not an asset in all (I would even argue most) cases - proven by companies which open source the vast…

> if you lobby for a thing which does not do harm to other people

The reason this is being discussed now is because of its inclusion in the Big Beautiful Bill which will kill the poorest in society by kicking millions off Medicaid and food stamps and increase the debt to unsustainable levels.

So if you support this tax cut for software developers you are the bad guy.

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

#770

Post by Havoc »

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…

Tax authorities tend to look at income side rather than expense as you are. If this thing has a useful life and gives benefit over 5 years thus you get tax deductions over 5 years.

So comes down to whether you view a software engineer as something that has value only in the moment (like HR person) or as creating an enduring asset (code base).

A good code base obviously has long term value and there is no raw material input, just engineer time.

Either way you end up with awkward mismatches somewhere & the deferred version as you say has undesirable chilling effects, but I don't think it is entirely without merit either. Think of it from tax man perspective: They're being asked to hand out 100% of the tax credit today while receiving the income over years time. Switching this back to old model doesn't make the mismatch go away - just shifts it to taxman.

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