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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)

#911

Post by keybored »

jldugger wrote: post #392
ASalazarMX wrote: post #118

Earlier quoted context omitted.

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 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.

Labor theory of value in other words.

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

#912

Post by keybored »

naikrovek wrote: post #205
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…

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…

> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please.

They’re gonna lobby to get as low taxes as they can. Why would they do anything else? That people think they are “lamprey” is (or would be) a minuscule problem in a country like America.

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

#913

Post by rayiner »

hosh wrote: post #859
rayiner wrote: post #829

Earlier quoted context omitted.

> Correct me if I'm wrong, but if a company hires someone to say, mine coal or brew beer, the expense of those employees is an expense any company can claim a full tax deduction on. If you're a line chef or wait tables, your salary is tax deductible to the restaurant. The question is: are you getting the value of that work in the same tax year, or is it creating an asset that creates value over time? If you hire a gu…

The difference between a fermentation system and software is that right now, software changes fast enough that five years is a long time. While there are software that are still in use from five years ago, there are plenty of obsolete software no one is still using made five years ago.

The tax code accounts for that by providing different depreciation schedules for different kinds of assets. For software the catch-all depreciation schedule is 3 years: https://www.irs.gov/publications/p946.

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

#914

Post by gamblor956 »

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…

Section 174 just brings the treatment of software engineers in line with the way that manufacturing labor is treated in all other industries. If tech hadn't exploited this loophole so hard to invade other industries, the GOP probably wouldn't have tried to close the loophole in 2017.

That being said...the current version of the bill would temporarily pause the current version of section 174 (capitalization of software labor costs). There's no way for them to make the original treatment permanent without adding another trillion or so to the cost of their mega bill.

However, the original reason for that temporary reprieve was that Musk was still Trump's best buddy at the time. Right now, it's the most likely target for getting cut in the reconciliation negotiations between the House and the Senate. Thus, YC reaching out to its readers to support this abomination of legislation.

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

#915

Post by arrowsmith »

smilliken wrote: post #846
arrowsmith wrote: post #736

Earlier quoted context omitted.

[flagged]

The em dash was in popular use long before chatgpt. It's a useful grammatical symbol and a short dash is not a good substitute. Consider whether you'd use it if it was a dedicated key on your keyboard, if so then it's worth the small inconvenience to learn how to type it.

Not just the em dash, the whole post stinks of ChatGPT, and there are two other obvious tells in the sentence I quoted.

If you know you know.

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

#916

Post by gottorf »

dsr_ wrote: post #800
eadmund wrote: post #772

Earlier quoted context omitted.

> Taxes reduces taxes? Yes. It’s a second-order effect. Imagine if there were a 100% tax: the government would probably get no taxes, because there would be no economy. > So are you saying that 0% rate taxes would capture the most tax? No. There’s a sweet spot. Everyone argues about where it is, but obviously 0% and 100% tax rates would both be problems.

It all depends on where you apply the taxes. If you tax inputs but not outputs, then a 100% tax rate increases the cost of goods and services but does not necessarily kill the business. If you tax income, then a 100% tax rate kills all income. However, income taxes are usually progressively, so a 100% marginal tax rate places a cap on income, but income below that can exist. If you tax profit, a 100% tax rate leads t…

> If you tax profit, a 100% tax rate leads to shifting profits to reinvestment and salaries and benefits.

There wouldn't be any money to reinvest into salaries and benefits, because capital would not be deployed on a risky, potentially money-losing venture without the possibility of profit.

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

#917

Post by ndesaulniers »

jbs789 wrote: post #723
blindriver wrote: post #655

Earlier quoted context omitted.

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.

I think he stopped short of a more controversial observation (for this audience), that capitalising these expenses for tax purposes is actually closer to GAAP/what's happening in the financial statements, and the prior treatment could be viewed as a tax stimulant to encourage development. When viewed through this lens, are growing companies trying to have their cake and eat it too - get the boost to GAAP net income f…

> This perspective ties everything together for me, in terms of understanding the incentives of the players here.

Mind restating those, for those of us without the financial background who are struggling to digest these insightful comments?

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

#918

Post by kiba »

markhahn wrote: post #856
kiba wrote: post #668

Earlier quoted context omitted.

Taxes on income or capital inherently reduce income and capital. Ditto for sale taxes, which reduces transaction volume. This is bad for the economy and ultimately reduce our tax base. About the only thing that doesn't happen is for non-reproducible privileges such as land, intellectual properties, the electromagnetic spectrum, etc.

I'm heartened to see this downvoted, since it's basically tax-trolling. Yes, there are people who think tax==bad. Most people (and for a century or so) have understood that taxes are ultimately spent, and normally with a "multiplier". That is, on something which actually stimulates further economic activity. Corporate profit, OTOH, normally just satisfies the rent-seeking economy, which is not productive in any natur…

It's simply pointing out that taxation of economic activity is detrimental to the state, not that taxes are evil. This should be avoided as much as possible unless truly necessary.

The state can still tax in two ways, taxes on undesirable negative extremity such as products that give you long cancer, and unreproducible privileges. I listed those examples. There may be ground for taxing extreme wealth but I want to see extreme inequality fixed first.

I am not even disputing that the government spending encourages economic activity, but we should at least not shoot ourselves in the foot only to heal the foot with another hand.

I am advocating for the interest of the state.

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

#919

Post by fsckboy »

throwawaymaths wrote: post #652
fsckboy wrote: post #576

Earlier quoted context omitted.

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.

the accounting rules that require capitalizing R&D are the same for all companies, and the amortization is expensed.

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

#920

Post by jweir »

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…

10% first year
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