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

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531–540 of 957 posts

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

#531
post #407

Earlier quoted context omitted.

> 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. We all do this at the conclusion of every successful job interview. And performance review. And budget review. IMO it's a reasonable floor on the value engineers produce: if you produced an asset worth less than your salary you should be concerned for your career.

On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative. This whole discussion is sort of orthogonal to the real point, though. The state (or the IRS, or Congress, or whatever) has decided that for some reason, if Jim gets paid $100k his boss can deduct $100k in expenses, but if Jane gets paid $100k her boss can only deduct $2…

> On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative.

Well, that's what I had in mind, but the concept is why agile focuses on shipping early and often. Well, mostly it's to get in more feedback iterations, but engineer hours are not immune to time-value of money analysis.

> This is a categorically stupid thing to assert. It's a stupid thing to say and it's a stupid thing to believe. Payroll is an immediate cost, paying for the development of software is not remotely the same thing as purchasing a capital asset

But it's also not like paying a janitor to clean toilets and empty wastebins where we know there's no residual value accruing to the employer. Companies do buy and sell intellectual property in the form of copyrighted code, and in the form of patents. Heck, ARM basically makes a living licensing out the cores it designs.

This obviously isn't perfect and the disparate impact has unintended consequences that could make things worse overall, but the accusations against the senate are a non-sequitor given the power of the purse lies in the House.

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

#532

Does Section 175 apply to other professions? For example, if I hire a full-time handyman for my office, does their salary count as a deductible cost? Sorry if this sounds naive—I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work. It seems logical that either all labor costs should count as costs, or none should. If different types of jobs ar…

> I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work Trump wanted a large tax cut. To make the numbers look better (notably the CBO reporting), Congress looked for ways to increase revenues. For whatever reason, they settled on software development, and devised Sec 174 to generate tax on 80% of s/w developer salaries in the first year it we…

I think this also favours large, established tech companies that are less sensitive to the costs being smeared across a few years than would most capital-hungry startups.

I wonder if some influential ones pushed for the change figuring it would carve their moat a little deeper.

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

#533
post #276

Doesnt this new law inhibit rapid turnover tho? Since it takes 5 years to get the full deduction of an employee’s salary, there is an incentive to keep the employee around. OTOH, the souless bean counters who want quarterly (if not shorter) time horizons, will simply decrease starting salaries and use other methods to be net zero. If they do shaft the software engineers, then the converse is true-no employee should s…

Seems like it'd incentivize layoffs. You have amortized deductions coming up, with layoffs you pay less to expensive engs and have relatively more saved up deductions than w/o amort. Thus, big short-term benefit to layoffs.

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

#534

Earlier quoted context omitted.

> Assuming the tax rate is 50% Which is not(?). According to https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St... , federal corporate income tax rate is 21%, + additional <10% for state level, not sure about local level.

One of the reasons small businesses have been hit so hard with this is because for then (when incorporated as LLCs), their tax rate is 37% + state + local. I live in NYC and my LLC has a combined tax rate of 50%.

You live in the most expensive metro in the country, one of the most expensive in the world, and tax is where you think your money problems come from?

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

#535
Disappointed there’s only two mentions of GAAP on this thread.

This change aligns (to a closer extent than before) Tax accounting with GAAP accounting. Let’s say the tax code returns to pre-2017. Would the same people seeking this change seek a change to GAAP? No, because it would hurt their profitability.

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

#536

Earlier quoted context omitted.

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

> the current situation - where the ultra-wealthy don’t pay taxes because all their wealth is in unrealized gain This is neither the current situation nor even a theoretical possibility.

Sorry, "don't pay taxes" was hyperbole - what I meant was have a lower tax rate than the rest of us.

Isn't that the whole point of all sorts of tax strategies, for instance Buy, Borrow, Die?

https://www.forbes.com/sites/davidrae/2022/07/14/how-the-ric...

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

#537
post #524

Earlier quoted context omitted.

> what is the corporate tax rate? 21% > It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer. Which is a problem if you don’t have the money to pay the tax. Let’s combine your and the parent’s examples: 1 principal engineer @ $300,000/year; 3 engineers @ $200,000/y…

It seems like the amortizing over the lifetime of a capital asset is what is tricky for software, not that some businesses operate with very small profit margins. For the example given, that must have been a hyper-competitive area; continued yearly improvements of $900,000 was not enough to increase sales. So at year 6 the owners got rid of the engineering staff. What happens to revenue? Did all the competitors die a…

I really liked the suggestion someone else posted in a discussion, that IP-encumbered assets should require amortisation of expenses over the lifetime of the IP (and of course the owner can always immediately write them off by releasing the IP instead).

But I do wonder what the effect on smaller shops would be.

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

#538

Salaries aren't a one-time expense, so is the amortization rolling? Like, year 1, you pay me $200k and deduct $40k. In year 2, you pay me another $200k, do you get to deduct $40k for year 1's salary and $40k for year 2's salary? I guess another way to ask is, does this mean that if you keep someone for 5 years and don't change my wages, is their yearly salary effectively fully deductible? If so, does that create ince…

There's no difference if you fire and hire a new worker every year or you keep them long term. You carry the amortization over until its completely written off.

Ahh good call. My $200k vs. your $200k doesn't really matter with a given year.

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

#540
post #442

Earlier quoted context omitted.

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.

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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