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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)

#771

Post by andrewlgood »

narag wrote: post #229
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. I'm not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you're expected to keep extracting value from it over the years, so you can't get a deduction for the whole expense when you f…

Many people use depreciation and amortization interchangeably. From an accounting perspective one uses depreciation for tangible assets (can be touched and seen e.g. machinery) and amortization for intangible assets (e.g. trademarks and R&D). Depreciation and amortization behave the same way - they decrease an asset by expensing a portion of it on a regular basis.

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

#772

Post by eadmund »

happymellon wrote: post #707
kiba wrote: post #668

Earlier quoted context omitted.

Taxes on income or capital inherently reduce income and capital. Ditto for sale taxes, which reduces transaction volume. This is bad for the economy and ultimately reduce our tax base. About the only thing that doesn't happen is for non-reproducible privileges such as land, intellectual properties, the electromagnetic spectrum, etc.

Taxes reduces taxes? So are you saying that 0% rate taxes would capture the most tax?

> Taxes reduces taxes?

Yes. It’s a second-order effect. Imagine if there were a 100% tax: the government would probably get no taxes, because there would be no economy.

> So are you saying that 0% rate taxes would capture the most tax?

No. There’s a sweet spot. Everyone argues about where it is, but obviously 0% and 100% tax rates would both be problems.

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

#773

Post by tekknik »

matthberg wrote: post #628

Note that this letter's requests DO NOT include voting against the reconciliation bill, just modifying it to add a carve-out to fix Section 174. While I agree that Section 174 desperately needs reform and is harmful to the tech industry, the bill as a whole must be opposed, not tweaked. There are many, many things wrong with the "Big Beautiful Bill", too many to fix through piecemeal efforts like this. It must be res…

Care to elaborate?

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

#774

Post by andrewlgood »

jetsnoc wrote: post #478
amanaplanacanal wrote: post #376

Earlier quoted context omitted.

If you buy a building, it is a capital expense that depreciates over years, even though you absolutely have to keep paying for maintenance. Why should software be different?

Unlike a building—where you might find one for sale and simply buy it—most companies don’t "buy one software" from a vendor and amortize it like a purchased asset. Instead, they hire full-time teams to build, maintain, and evolve software as a core, continuous function of the business. And most companies don’t "sell one software" either—they lease it to others, as software-as-a-service. In your analogy, when a compan…

But the idea behind capitalizing research and development is to eliminate the difference in financial presentation between buying and building software. In both cases, one pays cash to acquire the software then uses it over a period of time to generate revenue. Purchased software is clearly capitalizable. It is then amortized over the expected useful life of the software. Annual maintenance fees are not capitalizable as they are not expected to extend the useful life of the software. Allowing R&D to be capitalized just evens the playing field.

If R&D were not allowed to be capitalized, then a company would have an incentive to create a specific entity to develop its internally used software, then sell that software to parent company. If it set up the entities properly, it would capitalize the software as purchased software rather than R&D. Many firms with international development teams do this to manage in what country they pay taxes - the goal being to derive no value in high-tax countries and high value in low/no tax countries.

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

#775

Post by tekknik »

MyPasswordSucks wrote: post #545

The tech community, correctly or incorrectly, is broadly seen as "anti-tax cuts", so - regardless of the actual merits of this particular tax cut - I'm not sure how well-received this campaign will be. I'd brace for some rather heavy sarcasm on social media for anyone brave enough to tread those waters.

It bothers me when other software devs assume everybody is the same as them. In CA, sure likely most engineers are likely democrats. This does not mean they’re the majority. In fact many republican devs are still scared to speak out because of the censorship and canceling during COVID. You cannot make this assumption that we are broadly against tax cuts.

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

#776

Post by threeseed »

dang wrote: post #14
vasco wrote: post #12

> but this issue has as close to a community consensus as HN gets Curious how this is assessed of you could share?

The number of threads and the comments in those threads. e.g. from a few days ago: https://news.ycombinator.com/item?id=44208063 https://news.ycombinator.com/item?id=44208875 https://news.ycombinator.com/item?id=44207240 https://news.ycombinator.com/item?id=44205579 https://news.ycombinator.com/item?id=44205479 https://news.ycombinator.com/item?id=44204864 https://news.ycombinator.com/item?id=44204808 https://news.yc…

So you believe that the majority of HN commenters support the Big Beautiful Bill:

Adding trillions in unfunded liabilities to the US debt, kicking tens of millions off of Medicaid and food snaps, allowing the Trump administration to ignore court rulings just to name a few. Arguably the worst bill in the history of the US.

Tech bros putting their personal wealth and greed ahead of what is best for society.

Because let's be honest here. That is the only reason you're posting this now of all times i.e. in order to help push support for the bill ? I really thought HN was above cynical politics.

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

#777

Post by [deleted] »

kgwgk wrote: post #751
miroljub wrote: post #749

Earlier quoted context omitted.

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.

[deleted]

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

#778

Post by mgkimsal »

andrewlgood wrote: post #593

I think people are missing the actual process used by Finance teams relating to this issue. I am a former CFO and spent a fair amount of time with this issue in my last role. The firm had a significant amount of software engineering expense related to its core operating system that was the backbone of the company. The FASB accounting rules drive the capitalization of software expenses, not the tax rules. The FASB def…

"... then applied to software development in an effort to juice hiring."

How does it 'juice hiring' by removing the ability to deduct 100% of an employee's cost in one year? Who would be incentivized to hire more people when less is deductible?

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

#779

Post by mgkimsal »

Schiendelman wrote: post #735
blindriver wrote: post #671

Earlier quoted context omitted.

In the initial years most startups have massive losses that they carry forward and don’t need to pay taxes anyway. During that bridge period the affect of section 174 is zero since they aren’t paying taxes anyway. This really only affects software companies that are profitable in their first year, which is a very small minority.

I think you're missing something - the only way these startups have those massive losses is if they can deduct them . This rule change stops them feom being able to deduct 80% of most of their expenses in the year where the expense occurs.

Amen.

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

#780

Post by brianbreslin »

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…

Out of curiosity, why were software engineers carved out? Was this a punishment against the tech industry? With 45/47's administration there is always some either profit angle for his friends or retribution angle for something.
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