This one hit my company pretty hard.
Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
361–370 of 957 posts
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#362Thanks for working on this guys. The current tax code is fairly crazy: you could spend a few million in salaries, sell 200k of software in a year and possibly owe taxes on that. Even if the company would otherwise be shutting down. The traditional capital asset treatment applied to software leaves a lot to be desired. Some software is a capital asset, but much just isn’t. Or at least should be considered to depreciat…
I would be surprised if nearly all software companies wouldn't consider their code to be a valuable capital asset. For example, do you think your company would be okay with releasing commits/snapshots of their source code and design docs into the public domain once they hit 5 years old? Or do they currently depreciate too quickly ?
Even if true, a small fraction of engineering time on a project is actually developing that asset. The rest is maintenance and support. The tax code does allow for this distinction, but only if you track hours associated with each kind of work, which basically no one does. And even if they tried, it's difficult because that line is blurry. Tasks are rarely 100% one or the other. Ever fixed a bug by refactoring to make something better? Which kind of engineering is that? Can you justify that to the IRS accountant auditing you?
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#363Earlier quoted context omitted.
> under what definition of software engineer? Probably a broad enough definition to net the US Government the greatest tax revenue possible for the effort to enact this.
IDK if that's right. Oddly, the current administration has gutted the IRS and seems pretty ambivalent about collecting taxes that are on the books. I wonder if there will be an inconsistent definition of who is a software engineer, based on how friendly the company is with the administration, whether the company still has someone with a DEI title, etc.
Judging by the Big Law shakedown, enforcement will be based on how much of your corporate cash is held in Taco’s shitcoin.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#364Earlier quoted context omitted.
If we had specifically defunded highway patrol that was net-revenue-positive, yes. Republican defunding of the IRS is literally insane: reform by cutting enforcement. - It rewards people who cheat on their taxes. - It costs the government more money that it saves, because IRS investment is net revenue positive. But then, the modern Republican party seems more concerned with being the party of 'law(s I agree with) and…
People greatly overestimate the amount of material cheating that happens, especially among large companies and the wealthy. I used to work for a Federal audit organization and almost all of the recoveries had a root cause in sloppy compliance and record-keeping practices rather than intentional malfeasance. It is broadly recognized as optimal that the recovered money should be several-fold the direct costs spent to r…
This comment (currently downvoted to hard-to-read grey-on-grey) is an excellent example why you should always enable "showdead" in your profile, use user CSS to make downvoted comments readable again (e.g., https://news.ycombinator.com/item?id=41514726), and browse https://news.ycombinator.com/active instead of the homepage once in a while.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#365Earlier quoted context omitted.
But that's the rub right? What is the definition of maintenance activities? And for what software? If you are writing a new script to automate something or updating an existing script, is that not software development? If that's considered maintenance activities then would maintaining a software codebase not be considered maintenance activities then?
In my simple mind, if software has been "released" it is no longer R&D, and "bug fixes" (which should include continuous improvements such as your example) are not research. I may be way, way wrong though.
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.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#366A 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…
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!
My taxes (flow through LLC) are significantly higher than my income for 2024 (like hundreds of k).
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#367Earlier quoted context omitted.
Normally when a business spends money producing a valuable asset, it is required to depreciate the cost to acquire the asset over the useful life. If a business pays people to create a new building, that is depreciated over 20 years. Even if it was paid for as salaries of employees, it isn't a special situation unique to software engineering.
I don't think that's quite right? The value of the asset itself is depreciated over years, sure, but the payroll itself for the employees is just an immediate expense.
How can you compare a purchased asset to one you pay people to build?
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#368Earlier quoted context omitted.
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…
The answer to all these questions is yes, i don't see the point in trying to obfuscate this with artificial complexity. What about HR, etc who use excel documents? IF they are using it rather than developing it, no. If they put in 5 hours a week writing code, yes for those 5 hours. This isn't hard.
So now every engineer has to record how many hours each day were spent doing "software development" vs. "software maintenance"/"overhead"/"etc..."?
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#369Forgive me if this has already been answered in one of the other threads (I haven't been following them), but: How does this work in other countries?
In Sweden you have the option to capitalize software development costs, under some specific circumstances, but in general you would expense such costs immediately.
Some startups do it to window-dress their balance sheet, though. But making it compulsory is absurd.
Re: Tell HN: Help restore the tax deduction for software dev in the US (Section 174)
#370Earlier quoted context omitted.
This is what's happened at my workplace. We account for time spent working on developing new products differently that development time maintaining legacy applications. Because they are reported for tax purposes differently.
This gets really “gray”. I work on web software and we tend to deploy at the end of the day. Meaning only the smallest programs are “new” or not yet in service. This is a mess.
Seems like maintenance is better and can be deducted in the same year?