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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)

#651

Post by franciscop »

dwg wrote: post #630

Japan has required amortization of capitalized software over five years for qualifying internal-use software since at least 2000. Correct me if I’m wrong, but I believe most other countries have similar rules. Until 2022, U.S. companies had a real competitive advantage. Software developer salaries in Japan are depressed—other roles too, but especially engineers. Without digging too deep, perhaps the previously unfavo…

Dev here working in Japan for few years, I don't think the main reason software salaries are low in Japan is financial, but social/cultural. Software has traditionally not seen as valued as hardware, it was just an "extra" added on top of the hardware part. Basically never went through the startup revolution of the 2000s in US.

Also Japan is still very hierarchical, so old ideas change much slower. I would say the combination of these 2 are the main reason software is not as valued as in e.g. America, but there are many others like lack of international competitiveness due to the low English skill, ZIRP, and the ones you note seem totally valid ofc.

This is a very interesting recent report about salaries in Japan (e.g. foreigners, and/or foreigner companies get paid/pay a lot more):

https://www.tokyodev.com/articles/software-developer-salarie...

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

#652

Post by throwawaymaths »

fsckboy wrote: post #576
throwawaymaths wrote: post #552

Earlier quoted context omitted.

yeah but a high risk venture going from zero has exactly this problem: you might fail to build your product, and crazy enough the weight of having x% tax may have made the difference. you should be able to choose if you'd like to do immediate accounting or amortized accounting.

investors pay tax on profits, write off losses. The investors can add money in if they feel the idea is good. The tax code should not tilt the balance of the market. people on this site complaining about lobbyists, regulatory capture etc, up and down the page, but wanting their own industry favored is a great illustration of the problems we face.

no, it's not wanting to be favored, it's wanting to be treated the same as any other company with expenses.

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

#653

Post by jchanimal »

elliotec wrote: post #387
koolba wrote: post #323

Earlier quoted context omitted.

Any decent sized company already does this. You’ll see a field on things like Jira tickets for whether something is maintenance or capital improvement. And presumably that information can be used to infer the percentage of a given workers time that can be attributed to deductible vs depreciable expenses.

Exactly. Everywhere I’ve worked, this was a quick and non-intensive collaboration between engineering management and like one finance person. It’s baked into a ton of tools already (like you mentioned, Jira) so the percentages are usually just there and eng leaders review it with FP&A twice a year.

Real innovators can’t stand this sort of noise and so it is a direct shot against their bow

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

#654

Post by jchanimal »

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

The word “just” in your comment disgusts me

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

#655

Post by blindriver »

andrewlgood wrote: post #593

I think people are missing the actual process used by Finance teams relating to this issue. I am a former CFO and spent a fair amount of time with this issue in my last role. The firm had a significant amount of software engineering expense related to its core operating system that was the backbone of the company. The FASB accounting rules drive the capitalization of software expenses, not the tax rules. The FASB def…

This is wrong.

It's an IRS code change, not FASB. FASB doesn't oversee taxation at all. Section 174 is strictly a tax issue.

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

#656

Post by blindriver »

e40 wrote: post #462
hermannj314 wrote: post #408

Earlier quoted context omitted.

[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.

In the first year, you only get to deduct 20%. But in your second year, you get to deduct 40% (20% from the first year and 20% from the second year). In the 3rd and 4th year it's 60% and 80%. And so on until you get to steady state of 100%.

So, no, it is not "really bad" for you. You as the owner might not make as much money for the first year, but you will be at steady state in a few years, and you get to deduct the salary for years after they leave.

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

#657

Post by steine65 »

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]

This does feel a bit like propaganda. I'm a CPA with ex-Big4 audit experience, albeit only 4 years, and specialized in revenue rather than expenses. I just briefly read over the pwc summary of the related FASB standards covering Subtopics ASC 985-20 and ASC 350-40. It pretty much says that you expense everything on software that intended for selling until it's technologically feasible. Upgrades afterwards are capitalized, then amortized. Internal software development is capitalized. Like, if you build internal infrastructure, it likely has value, similar to PP&E. Differences is, Equipment is physical. The value of the software is the minds and time that went into it. I'm also certain that if you could prove to your auditors that your software is not worth much, you could probably expense more of the costs. This whole thread screams big tech company propaganda.

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

#659

Post by arunabha »

blindriver wrote: post #656
e40 wrote: post #462

Earlier quoted context omitted.

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.

In the first year, you only get to deduct 20%. But in your second year, you get to deduct 40% (20% from the first year and 20% from the second year). In the 3rd and 4th year it's 60% and 80%. And so on until you get to steady state of 100%. So, no, it is not "really bad" for you. You as the owner might not make as much money for the first year, but you will be at steady state in a few years, and you get to deduct the…

I think an implicit assumption here is that the company is able to survive the five years. This rule affects cash flow in the initial years pretty hard and a lot of small companies cannot survive that.

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

#660

Post by csomar »

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.

Many companies are ignoring laws either by fraud or ignorance. (ie: remote hires are mostly illegal or grey)
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