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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)

#461

Post by kla-s »

jandrewrogers wrote: post #270
ethbr1 wrote: post #226

Earlier 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…

Whats your view on Cum-Ex?

And maybe as a Bonus what do you make of the smaller (relative) taxrate the bigger fish (companies/wealthier individuals) pay?

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

#462

Post by e40 »

hermannj314 wrote: post #408
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…

[flagged]

You are completely wrong. I run a small software company and this is really bad for us.

All this does for large companies is that it might cause them to layoff developers.

For a small software company it can threaten our existence.

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

#463

Post by amanaplanacanal »

convolvatron wrote: post #424
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?

if I pay a bunch of employees to take the cloth I buy and cut and sew into shirts, that's an expense some directly out of my revenue and isn't taxed as profit or forced to be amortized. Why should software be different?

I suppose it depends. Are you making shirts to sell, or to use in your business? One is inventory, one is a capital expense.

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

#464

Post by seneca »

hermannj314 wrote: post #452
jweir wrote: post #447

Earlier quoted context omitted.

You know not what you speak of. I am small developer without funding. For every developer I hire I pay tax on 90% of their wages in year 1. So, if I hire a 200k a year developer, I have an increased tax liability of 180k. That works out to paying about $75k ~ $85k. So my 200k developer becomes an 285k developer. Now, eventually I could regain that cost, or I could do like I know of a few companies and commit tax frau…

[flagged]

Smothering one of the only prosperous industries in the country so we can feed evermore to our bloated reckless spendthrift government isn't noble.

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

#465

Post by mbesto »

ASalazarMX wrote: post #118
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…

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 nuts, since a payroll should never be considered an asset.

That's because it's not "a payroll". When a payrolled resource builds a combustion engine that powers the office where the rest of the payrolled resources work every day and that engine lasts 15 years, then its a very clearly a capital expense and an asset.

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

#466

Post by jeremyjh »

the_arun wrote: post #460

Why payment to Software Engineers is not an expense for the current year? Is it because of the size of the expense? or some other rule that I am missing. Those employees are also paying taxes to those salaries as well. Isn't it? What is the catch? I'm confused.

Work on product is typically classified as R&D expense. R&D salaries are considered to be developing a capital asset that will yield returns for years. So the costs of it also are amortized over years. Bog standard accounting. The prior situation was actually an exception.

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

#468

Post by hollerith »

soneca wrote: post #457
hermannj314 wrote: post #452

Earlier quoted context omitted.

[flagged]

My understanding is that the salary of other types of workers do not follow this rule. If that’s correct, then the section means software developers are actually special snowflakes treated differently by the tax code

Untrue: for example, if you are a lawyer employed to help a company acquire real-estate or another company (i.e., a merger) then your salary is treated the same way by the US tax code (i.e., your employer must amortize your salary).

If you want to argue against the current tax code, point out that currently companies do not have to amortize the pay of executives even though arguably their work fortifies the company's ability to make a profit in future years like the work of software developers does.

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

#469

Post by TheTaytay »

winter_blue wrote: post #403
TheTaytay wrote: post #151

Thank you for helping to tackle this. The silence on this issue for the past few years from smaller software companies and their affiliates was surprising to me. The recent "time bomb" article was one of the few media pieces that actually took the time to describe it as anything other than a "tax cut for huge tech companies", which was refreshing. My current favorite theory as to why there hasn't been more of an outc…

> many companies ignored the rule change How does that even work? You’re saying many companies committed tax fraud by ignoring the law change and continued to deduct software developer salaries as they had in the past? I find that hard to believe.

You're right. I take it back - not "most", but I would stand behind "many more than is typical for a change to the tax code".

It snuck up on a LOT of people, including CPAs, and represented tax bills for businesses that were multiples of the previous year's tax bill, and sometimes _multiples_ of their actual cash profit.

It's also so counter-intuitive that you can't deduct software dev salaries, that many people still don't believe it works the way the law says it works. If you read the comments here and in other threads where this has been mentioned, on Hacker News or elsewhere, years into this fiasco, you'll see widespread doubt and misunderstanding. Many people equate this to the same R&D rules for the older tax _credit_ or will argue that it can't possibly work the way the articles say it works. People don't magically begin to understand section 174 just because they run a business, and it's not in their financial interest _TO_ understand how it works. Many can't afford to.

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

#470

Post by mmooss »

dang wrote: post #52
varsketiz wrote: post #38

Somehow I'm not a fan of HN using this community for lobbyism purposes.

pg used to do it semi-regularly, especially on internet freedom isssues (edit: and software patents, IIRC), so arguably this is getting back to HN's roots. I remember he did an anti-SOPA thing on HN which involved some kind of banner at the top of the frontpage. It's probably saved at archive.org somewhere.

> internet freedom isssues

Freedom - an essential public good - is much different than using HN for lobbying for tax policy that favors YC.

You know that doing this is a big change. Why not be straightforward about it - including whose idea it is, what the parameters are, what the new policy is, etc.? If you feel you can't or feel hesitant, then you know something is wrong.

It changes the nature of HN in my mind, to something manipulative - not unlike other social media, and not unlike the trend in other businesses who embrace manipulation to greater and greater degrees.

We each have a personal responsibility to the world, as adults, to stand up for essential values. If we don't, in each of our communities, workplaces, and homes, who will? We are the only ones here; we aren't kids (not that you said we are, but to clarify the point) who can destroy things and leave it to the adults; nobody else will come in and save us.

> getting back to HN's roots

You can see a lot of companies and politicians using that - find some historical precedent and claim that is the 'roots'. There are many more roots then that.

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