861–870 of 957 posts
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While I understand the drawbacks, the current situation - where the ultra-wealthy don’t pay taxes because all their wealth is in unrealized gain - is even worse
This valuation of software for business taxes. If a business never sells its software, the software may very well have no value.
First, I think the impact on large businesses has diminished greatly since 2022 anyway, so restoring the tax deduction would essentially give those businesses a 1-year "bump" in their deductions (since they'd be able to expense the previous 4 years of left-over deductions all at once, plus the current year in full). As far as I can tell, the expense isn't tied to individual workers, just the combined salary expense. So hiring/firing shouldn't be largely impacted. And, any benefit the government would have gotten from large corporations has (again, since 2022) now expired.
For small businesses and start-ups, there is of course a much greater impact. And, ironically, I think the government is actually collecting less from small businesses in the long term, because the businesses that needed the full deduction to survive can't be collected from, having gone out of business.
So the government isn't collecting any more taxes today than it used to. It is probably collecting less, depending on how much revenue has shifted from small (and now failing) businesses to large ones. And we're basically encouraging all of those more entrepreneurial technologists among us to go work for larger corporations instead of striking out on their own.
I guess my question then, is, who does this tax code even benefit?
Edit: looks like it was just a victim of the TCJA, meant to make TCJA look less expensive. I don't think it had its intended effect.
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?
I seem to remember people being broadly in favor of this change at the time it was first proposed because it would elevade software development and create more long-term stability, but in a world where the primary focus is on quarterly funding rounded and acquisitions it obviously skews the numbers and thus the potential founded/early investor upside. There are two possible motivations for the impending change. One i…
I don't recall there being favorable reception when Trump's Congress passed it nor since. At best, non-awareness, and 'cost of business' for whatever the other talking points at the time. You can see the older HN threads, people were shocked, and it comes up perennially, with calls to restore favorable tax treatment that incentivizes vs punishes business growth. Same pattern in social media responses to news articles…
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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…
> 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. The question is: are you getting the value of that work in the same tax year, or is it creating an asset that creates value over time? If you hire a gu…
A better analogy is a brewery hires someone who builds a fermentation system, then continues to operate, maintain, repair, and improve the system over time. Some of the employee's time is spent on work that could probably considered R&D, some of it is on work that is clearly operation, and some isn't clearly one or the other. So how do you determine how much of the worker's salary is R&D vs operational expense? You can try and estimate some percentage, but that breakdown is at best an educated guess, and having to try and figure that out just adds pointless friction.
But that still isn't a great analogy, because in that case the fermentation system isn't the product, the beer is. So for a company that sells software, it would be more like if it wasn't a company that sold brew, but a company that rented out or sold its brewing equipment to other companies that made beer.
Also, the same argument about creating value that pays off over time could be said about most employees. An accountant could find a more efficient way to keep the books that pays off over years; the CEO could create a strategy that pays off over years; customer service staff could create a reputation for high quality customer service that pays off over years; etc.
And then, even if you assume that an engineer's salary is entirely R&D, then the only reason I can see to want that salary taxed at a higher rate is if you want to disincentivize R&D. R&D is already a large expense now in the hopes of a payoff later, and by increasing the tax burden now, you are making that upfront cost even higher.
Possibly dumb question... For a medium/large company, is this really a big deal? Their payroll is relatively stable year-over-year, so after a few years, it all evens out (very roughly). Or am I missing something? IE, is this really an anti-competition law, designed to protect entrenched tech industry players and prevent up-starts from, well, starting?
Based on everything I've read on it in this thread so far, it seems like it's pretty much hurting the little guys the most. Whether this is malicious or intentional or just incompetent or something I honestly don't know. Donald Trump's deeds and behaviour is just about the only place where I find myself unable to apply Hanlon's Razor.
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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.
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I don't understand the reasoning behind this, however. Why depreciate anything over multiple years vs just deducting it in the current year? Does it not all come out to the same amount to the IRS in the end?
The usual thinking is that a business wants an asset’s upfront expense spread over the years that asset earns income to reduce taxable profit in future years. In other words, the IRS receives more upfront but less total in the end. The problem is that R&D and software development behave more like recurring annual expenses, not upfront investments in something like a building or industrial equipment. Small VC-funded s…
Assuming positive inflation, the IRS receives more total, because the taxes they get paid now are worth more than the same amount of dollars they give back in later years. And if the company goes out of business, the IRS never has to give those taxes back.
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I don't recall there being favorable reception when Trump's Congress passed it nor since. At best, non-awareness, and 'cost of business' for whatever the other talking points at the time. You can see the older HN threads, people were shocked, and it comes up perennially, with calls to restore favorable tax treatment that incentivizes vs punishes business growth. Same pattern in social media responses to news articles…
Yes, as far as I can tell, this change was made to help balance the cost of other provisions in the TCJA. On paper, it would have at least let them claim they'd take in 5 years of extra tax revenue in from tech businesses (most of it in year 1). I don't think it has any long-term benefit for anyone, even the government.