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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)

#541

Post by bung33 »

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…

The idea that this is leading to mass developer layoffs is an overstatement.

The total amount spent will ultimately be expensed, whether immediately or over five years. The sole impact is on the time value of money, which I don't believe warrants the current scale of developer dismissals.

Also, the claim that taxes are levied even during a deficit seems incorrect. While I'm not familiar with US tax law, it's typically possible to carry forward losses.

For example, if a developer is hired for five years at $100 annually, the expensed amount in the fifth year would still be $100, even after any legal changes.

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

#542

Post by jmward01 »

In general, anything that encourages companies to reinvest money into infrastructure, research, etc is a great idea. The trick is to make sure it actually does encourage research, infra, etc etc and doesn't just give a loophole for companies to take more profits and pay less tax.

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

#543

Post by [deleted] »

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.

[deleted]

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

#544

Post by throwaway7783 »

xmprt wrote: post #525
throwaway7783 wrote: post #309

Earlier quoted context omitted.

Whether it is $1 or $0.10, it is non existent for young software companies. If I'm penniless (after real expenses), where will I get those 10 cents to pay the taxes? And I'm not making this up. We are about to get cash flow neutral in our company, and this law will literally kill us and make 20 US citizens unemployed.

As far as I know, this law has been a thing for a couple of years now. How has your company been dealing with it so far? You say "this law WILL" but if it's already in effect, then it means that you would have already had to find a way to pay taxes for the last few years right?

Our other expenses offset it. (That is, we were making losses - typical VC funded company)

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

#545

Post by MyPasswordSucks »

The tech community, correctly or incorrectly, is broadly seen as "anti-tax cuts", so - regardless of the actual merits of this particular tax cut - I'm not sure how well-received this campaign will be.

I'd brace for some rather heavy sarcasm on social media for anyone brave enough to tread those waters.

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

#546

Post by fuzztester »

PaulDavisThe1st wrote: post #429
hintymad wrote: post #332

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…

>Trump wanted a large tax cut. To make the numbers look better (notably the CBO reporting), Congress looked for ways to increase revenues.

so is congress the slave of trump? not clear what is going on here. are the legislature and executive branches not independent?

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

#547

Post by fuzztester »

rkagerer wrote: post #532
PaulDavisThe1st wrote: post #429

Earlier quoted context omitted.

> 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.

likely, imo.

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

#548

Post by PaulDavisThe1st »

fuzztester wrote: post #546
PaulDavisThe1st wrote: post #429

Earlier quoted context omitted.

> 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…

>Trump wanted a large tax cut. To make the numbers look better (notably the CBO reporting), Congress looked for ways to increase revenues. so is congress the slave of trump? not clear what is going on here. are the legislature and executive branches not independent?

> are the legislature and executive branches not independent?

I am not sure how this can be a serious question right now, in 2025.

However, in 2017 the capitulation of power and authority by Congress was less obvious. What was still true was that the Republicans who controlled Congress and the President all wanted a large tax cut for higher income Americans, and were thus aligned on the goal. Since the President doesn't actually write legislation, this alignment was all that was needed to push the bill through.

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

#549

Post by rayiner »

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…

> 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.

This is an incomplete description. The ordinary rule depends on the nature of the expenditure. If your expense is for building an asset that generates recurring revenue—including paying people to build such an asset—then you cannot immediately deduct that expense. Instead, you must depreciate it over the lifetime of the asset.

The issue here is that software development is sometimes genuine R&D and other times more like building an income producing asset. E.g. if you spend money building infrastructure software to move bits from one place to another, that’s more like a factory building a conveyer belt than it is like investing in fundamental pharmaceutical research.

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

#550

Post by rbultje »

aqme28 wrote: post #246
naikrovek wrote: post #221

Earlier quoted context omitted.

> That gives you a profit, from a tax perspective, of $820k. > But you only have $100k of actual dollars. > Good luck paying your taxes! a lot of people here are conflating "taxable income" and "the amount owed in taxes" for some reason. if I earn $100/year, and I can deduct $50 of that, my tax bill is not $50. It is some percentage of $50, usually a low number for businesses. (Amazon regularly pays $0/year in taxes.…

(Not a tax professional) The federal corporate tax rate is 21% and for states it ranges from 0 to about 9%. So generally you're going to pay at least 21% or $170k for those "profits."

LLCs pay 37%, not 21%. Plus state plus local. This can reach 50% in high-tax areas like CA or NY.
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