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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)

#561

Post by jmyeet »

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…

So the 2017 tax cuts that introduced this change were a massive boon to US companies, particularly the tax holiday on repatriated foreign profits.

So why do we need to give these large, very profitable companies another tax cut?

Or maybe we should be asking, what of the 2017 tax cuts are they willing to give up to pay for this change?

Remember that after a few years, none of this matters. You might be paying $200k in salary to an engineer and can only deduct $40k, but you're also making deductions "earned" in previous years?

Basically, I reject the argument that this change is responsible for layoffs. It is not. And changing it won't lead to a hiring binge. Layoffs exist to suppress wages in these largest employers.

Maybe we should allow a 100% software development tax deduction if the company hasn't fired more than 1-2% of its workforce in the last calendar year. Or maybe only if the workforce is unionized.

This whole thing is so anti-worker. It doesn't have to be this way.

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

#562

Post by OneDeuxTriSeiGo »

sh34r wrote: post #381
OneDeuxTriSeiGo wrote: post #233

Earlier quoted context omitted.

That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating. This punishes small businesses and new businesses more than any large org because it massively incre…

From a more left-wing perspective, it certainly doesn’t feel like a coincidence that Section 174 kneecaps anyone who’d try to compete with the FANG trusts. I’m sure an oligarch paid good money to insert this rubbish into the tax code. Well, relatively good money. American politicians are shockingly cheap to pay off. Probably only took $10k each, to convince them to destroy billions in economic value. It’s a rare thin…

I'd definitely say it smells like oligarchical fuckery but the more mundane reality is that it was an easy change that would produce enough revenue to balance first term trump tax cuts so they could pass congress. I doubt anyone really thought too much past that and the underlying rationale was probably just "we hate woke social media, this hurt woke social media".

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

#563

Post by rtpg »

yojo wrote: post #220
addaon wrote: post #190

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. Software clearly has material value. For software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it. What other estimate of its material value is better than the one that the compan…

The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive. If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.

I don't get this. You speculative spend 1 million dollars on a new thing. It fails. In one universe you get to deduct 1M from your profit in year 1. In another you get to deduct 1M from your profit, but over 5 years.

I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse?

The cynical thing might be that this helps out big corps by preventing smaller corps from spending their way to success.

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

#564

Post by jmtulloss »

waynesonfire wrote: post #497
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…

So, after 5 years, they can deduct the entire salary.. this just seems like an incentive to promote long-term employment. Doesn't seem like a bad incentive.

No, this is not how it works. They can still deduct the entire first year of salary even if the person is let go, as that salary is considered a capital expense. There is no incentive to keep the person on payroll because of this policy.

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

#565

Post by grepfru_it »

I would not use section 174 as a reason not to startup but rather as a way to ensure you are running a lean ship. It’s very possible the rule change could be retroactive. Thats just my poker take on this bluff. It may not be retrospective or it may not happen at all. But indecision will kill some startups, the ones who don’t will be a year or three ahead.

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

#566

Post by gnopgnip »

commandlinefan wrote: post #203
gnopgnip wrote: post #162

Earlier 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.

But isn't the reasoning there that you could turn around and sell that building right away?

The reasoning behind depreciation is matching the income produced by the valuable asset, not really about resale value.

Presumably the value for tax purposes is based on the cost because the cost is harder to manipulate for something like software. Like some big box stores argue under the "dark store" theory they should be valued for much less because they have restrictive covenants banning competitors from using the property if sold, or that vacant property should be used as comparables.

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

#567

Post by RajT88 »

Muromec wrote: post #529
jandrese wrote: post #368

Earlier quoted context omitted.

So now every engineer has to record how many hours each day were spent doing "software development" vs. "software maintenance"/"overhead"/"etc..."?

You just add a row to spreadsheet at the end of the month. 30% maintenance, 70% development or whatever

My last company required timesheets to be submitted daily.

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

#568

Post by dangus »

mediaman wrote: post #307
naikrovek wrote: post #205

Earlier quoted context omitted.

say I work for a company for 5 years as a software developer, at $200k/yr the entire time. is this how it works: year 1: company deducts $40k: 1/5 of the salary for year 1. year 2: company deducts $80k: 1/5 of the salary for year 2, and 1/5 of the salary of year 1. year 3: company deducts $120k: 1/5 of the salary for year 3, 1/5 of the salary for year 2, and 1/5 of the salary for year 1. year 4: company deducts $160k…

You're bringing up the question of "what is a fair tax rate," which is reasonable. The questions of this legislation, though, are different: Should we incentivize companies to hire corporate executives instead of engineers? Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concen…

I think ultimately your interpretation is correct in your last paragraph, but I do wish someone in government would explain what they were trying to incentivize with the change.

Maybe they felt like software companies were too heavily incentivized by the tax code to invest in unproven, unsustainable businesses and would structure their businesses in a way that meant they’d never end up paying taxes.

Startups would blow a bunch of money on R&D for unprofitable moonshot ideas for a few years then the company would fail most of the time, with the government missing out tax revenue where workers could have been allocated to more profitable ventures.

Still, I think that the more cynical take is more likely (big companies lobbying to make it more difficult for small companies to disrupt their businesses)

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

#569

Post by tsunamifury »

robocat wrote: post #453
sh34r wrote: post #357

Earlier quoted context omitted.

A sufficiently idiotic tax scheme such as Section 174 can destroy far more income tax revenue than it collects, by destroying jobs and small businesses, and knocking high earners down a tax bracket or three. Section 174 isn’t doing much to tax FANG companies. Apple has all their profits in their Double Irish Dutch Sandwich racket. Amazon cooks the books to appear unprofitable on paper, in a manner that would make Hol…

> I think Zuck, the PayPal Mafia, and the blood-boy cabal bribed some Congresscritters to kill off what remained of their competition. What's with the craze for finding conspirational incentives? There's a repeatable pattern where commenters hallucinate an unreasonable incentive for everything. Motivations are difficult to discern (see courtrooms), and it is a modern vice to try and analyse incentives, but too often…

Uh have you worked in policy in faang? I have that would be the least insane tactic I saw used.

I can’t believe you’re trying to claim the high ground in rationalism here and have no clue how bad it is.

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

#570

Post by floxy »

pj_mukh wrote: post #554
floxy wrote: post #507

Earlier quoted context omitted.

Here are some charts and tables showing Amazon income taxes: https://www.macrotrends.net/stocks/charts/AMZN/amazon/total-...

Incidentally, should we really count "income taxes" as something "Amazon pays"? Amazon doesn't pay income taxes. Amazon employees do. The fact that Amazon conducts the transaction via withholding seems irrelevant. It's the employee losing the money.

You are confusing income taxes paid by employees with the corporate income tax paid by companies:

https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_St...

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