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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)

#881

Post by nrmitchi »

kgwgk wrote: post #808
andrewlgood wrote: post #801

Earlier quoted context omitted.

Short answer is yes. The finance team has to track each year’s expense as a “tax layer” and amortize it separately. By year 5, ignoring half-year or half-quarter conventions, if have a constant spend, the annual expense will be equal to fully expensing.

The short answer to some of those questions is yes. But clearly not for the final question: “does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?”

I dont think the math works out in a way such that individual employees are not interchangable. It's based on engineer labor cost as a whole; there is no difference if the 3yr year employee was Jack or Jane.

The net result here seems to be a tax-induced penalty to any (software) organization < 5 years old, as compared to a (software) organization with 5 years of employee history.

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

#882

Post by cryptonector »

TheCowboy wrote: post #842
cryptonector wrote: post #402

Earlier quoted context omitted.

Uhm, but the Democrats held the House and Senate for two years during the Biden administration, which came after the Trump tax cuts.

This wasn't really on anyone's radar until more recently. I don't think even a simple majority of tech workers even realized this had happened until after the job market had tightened up.

I don't believe that's true. I remember gnashing of teeth about this during the Biden years.

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

#884

Post by anon946 »

rayiner wrote: post #829
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…

> 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…

How are other kinds of engineers such as automotive engineers treated at companies like Ford, or aerospace engineers such as at Boeing?

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

#885

Post by kelnos »

rayiner wrote: post #829
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…

> 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…

If I hire a bunch of people to build me an apartment building, I deduct the full cost of their salaries in the year I pay them, even though once they build the apartment building, I get the value of that work over the following years.

How is that any different from hiring a bunch of people to write some software, that I then get the value of over the following years?

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

#886

Post by kgwgk »

nrmitchi wrote: post #877
thayne wrote: post #866

Earlier quoted context omitted.

But in that case, once the fermentation system is built, the brewery no longer needs that employee. 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…

How about actors? They produce a thing (content) that is sold for a prolonged period of time. Copyright is what, 20 years? How would Disney feel if the salary paid to the cast of the Avengers was no longer an expense in that year, but amortized over the entire copyright period of the film.

That’s how it used to be until a special rule was introduced allowing only $15m (or maybe $20m) to be expensed instead of capitalized.

Doesn’t change much for the Avengers films which have production costs around $500m. Disney still has to capitalize 97% of the cost. $15m doesn’t cover a single star’s salary.

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

#887

Post by davidjfelix »

api wrote: post #271
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…

Doesn’t this also unfairly penalize bootstrapped companies? VC track companies seldom have taxable profits.

It may result in an outsized penalty to bootstrapped companies but being VC funded doesn't make you immune to this. VC funded companies with revenue will not be able to offset their revenue by reinvesting in R&D (software development) expenses, so in some cases they may be seen as having a profit when they previously wouldn't have. In those cases they'd have a tax burden.

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

#888

Post by [deleted] »

rayiner wrote: post #829
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…

> 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…

[deleted]

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

#889

Post by dang »

runeks wrote: post #709
garrickvanburen wrote: post #262

What inspired working to reverse this now? I'm all for it, just curious as the law has existed for 8 years and been in effect for 3. Seemingly little interest from anyone in the tech world to put lobbying behind reversing it until this point. What changed?

> What changed? This post made it to the front page: https://news.ycombinator.com/item?id=44180533 I, for one, had never heard of it before that.

Lots more here: https://news.ycombinator.com/item?id=44203869

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

#890

Post by dang »

threeseed wrote: post #676
sergiotapia wrote: post #283

Earlier quoted context omitted.

Ok, say I call. What do I say: "Hey I want to show my support for the Big Beautiful Bill because it reverses the tax deduction for software engineers." And then what? (asking honestly lol for anyone who's done this before)

[flagged]

Would you please stop posting flamebait comments? You have a history of doing this and we've asked you to stop more than once.
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