Unaffiliated or None, if you&#x27;re gonna get in on it.

What should we do with the &quot;company&quot; field?

I don&#x27;t think that framing really tells us much, because there could be many reasons not to release that code that don&#x27;t indicate it&#x27;s an asset, such as (A) worries it might have still-relevant security issues, (B) costs of scrubbing other information like employee PII, or (C) the code is too useless to be worth the effort.If the goal is to measure retained value, I&#x27;d ask how much a competitor would pay to acquire your 5-year-old code (for direct use, not for hacking you) without feeling cheated afterwards.

I think companies view it as a trade secret. Whether or not that particular app is making money, regardless of how old it is, they don&#x27;t want to release the code.

Salaries are not generally considered “capital” - HR wording aside, you do not own your employees. It’s an immediate expense that may, or may not, produce something of value.The IRS is using a theory of value where software (1) is a capital asset (okay, sure), (2) has a six-year deprecation schedule (uhhh why not 5 like everything else?), and (3) is valued at the exact cost of all inputs to it, including salaries (uh oh).This is unlike how capital assets are valued for any other industry! And it has the effect that hiring a second lawyer is “cheaper” (for five years anyway) than hiring a second developer.

If you&#x27;re ripping off a competitor, sure, the salaries of your engineers roughly translates to the value of the resulting capital asset. But the most valuable work that software engineers do is the stuff that has never been done before. The salaries of your developers and designers and your product managers go first towards figuring out what a valuable capital asset would look like. Only after that can you start investing in the actual asset.The same is true for all true R&amp;D, which is why historically the government has tried to provide protections for R&amp;D work to incentivize people to not just churn out the safe bet over and over again. Patents fall into this category, but software patents are (rightly) hard to come by. Through 2022, the risk of software development was offset by the ability to expense the costs and avoid a tax bill, and this was good policy if your aim is to encourage innovation.The capital asset theory could still work if there were some way to appraise the value of the actual asset you created. But absent such a way, this thinking is deeply flawed for all but the most shovelware of jobs.

Even if true, a small fraction of engineering time on a project is actually developing that asset. The rest is maintenance and support. The tax code does allow for this distinction, but only if you track hours associated with each kind of work, which basically no one does. And even if they tried, it&#x27;s difficult because that line is blurry. Tasks are rarely 100% one or the other. Ever fixed a bug by refactoring to make something better? Which kind of engineering is that? Can you justify that to the IRS accountant auditing you?

you could test this by looking for MIT licensed code on github?

I would be surprised if nearly all software companies wouldn&#x27;t consider their code to be a valuable capital asset. For example, do you think your company would be okay with releasing commits&#x2F;snapshots of their source code and design docs into the public domain once they hit 5 years old? Or do they currently depreciate too quickly?

Have you read section 174? It forces software to be classified as R&amp;D and then use a weird 6 year amortization (10-20-20-20-20-10) for the salary.

Corporate taxes are indeed levied on net income after expenses. Trading money for capital assets is not considered expense.If you start the year with 0$ in your bank. After the end of the year you have made $200k in revenue. However you &quot;spent&quot; $200k on software salaries. However, because these are software costs, they must be depreciated over 5 years, so only 20% of that $200k software cost can be applied as depreciation cost which is considered an expense. So your net income for this year is $200k revenue - $20k depreciation expense = $180k. Your 15% tax on this is $27k.So you made $200k and spent all of it on software, so your bank account is 0, but you owe $27k in taxes.

Correct but the point is that the salaries of the developers are not treated as an expense to net out, they are treated as an asset that depreciates over some period of time.
(Even though some &quot;developer&quot; work might be day to day maintenance, rather than building a new feature.)

Not when it comes to capital assets. The full cost of a large capital asset is generally not allowed to be treated as an expense for tax purposes.It&#x27;s technically correct that tax is levied on &quot;net income&quot;, but that&#x27;s an accounting term which means something different from &quot;money_in - money_out&quot; when there are capital assets.One justification for this is, although you spent the cost, you received equivalent value in the form of the asset itself.This means if it costs $100k in salary to make software this year, and you get $30k in income from the software this year, your bank balance will lose $70k (which is expected) and you&#x27;ll have negative income in the ordinary way of thinking, but you&#x27;ll be charged income tax (which is new) despite losing money, as if you gained (almost) $30k instead of losing $70k.Your tax accounts will show an increase in net assets, despite the decrease in your bank balance, because they will show the software as being &quot;worth&quot; (almost) $100k, regardless of what it&#x27;s really worth right now.This is particularly hard if you&#x27;re a small company or (non-VC-funded) startup that&#x27;s already stretching to cover the cost of speculative software development. Being charged income tax even while you&#x27;re losing money developing software (in the ordinary way of thinking about money) is what&#x27;s new in the tax code. It makes it harder than before to do speculative developments, making some kinds of development non-viable that were viable before.

Isnt this just false? I thought corporate taxes are levied on net income?

Thanks for working on this guys. The current tax code is fairly crazy: you could spend a few million in salaries, sell 200k of software in a year and possibly owe taxes on that. Even if the company would otherwise be shutting down.The traditional capital asset treatment applied to software leaves a lot to be desired. Some software is a capital asset, but much just isn’t. Or at least should be considered to depreciate rapidly.

The exact law is a bit more nuanced than a &quot;tax deduction for software engineering&quot;, but I&#x27;m guessing OP put it that way because it makes for a snappier title on a SWE heavy forum like this one. I would check one of the threads that OP posted for more specific information on how the tax code changed a few years ago.

The proposal isn’t that it not be taxed. Rather that software dev be taxed like an expense, which is easy to track and rationalize, as compared to a capital improvement which is much harder to do so.

Forgive me for knowing next to nothing about how business taxes work, but if I invest $1m in software development, haven&#x27;t I just spent money? Why would I get taxed on spending?

It&#x27;s not a matter of whether it&#x27;s taxed. It&#x27;s a matter of how the costs are expensed. If I invest a $1m in software development now, I&#x27;m not making any profit yet. I may not make a profit. It&#x27;s a question over whether I need to pay taxes on potential future profit now.

I&#x27;ve been questioned on whether systems I had a hand in would qualify for the R&amp;D credits. Someone not particularly close to it had thought it might, but I explained to our external assessors that it didn&#x27;t and they agreed with that.

I&#x27;ve dealt with this at a previous employer (where we did try to be reasonably honest and submitted things that had some R&amp;D element, I can imagine a less principled approach). The concept of it seems sensible, in practice you end up justifying why something is R&amp;D to essentially non-technical people, probably at some consultancy who can then repeat a moderately garbled version of your description to HMRC who presumably just approve in most cases because they also don&#x27;t have the expertise to truly assess the subject matter (and let&#x27;s face it, we&#x27;d all struggle, even if we believe we&#x27;re expert software engineers, how do you assess whether work on a mortgage issuing product for a bank is truly R&amp;D if you have no familiarity with the domain).

The UK has (had) a tax credit for &quot;Research and Development&quot;, intended to be a tax break for genuine R&amp;D, but of course everyone lumped all software development into.The UK eventually put out guidance that business as usual development isn&#x27;t really &quot;research and development&quot;, but afaik there hasn&#x27;t been a serious crackdown on the practice.It seems kind of absurd to pretend that most work that developers do is pioneering the profession.R&amp;D tax breaks make sense, both to encourage genuine research but also to prevent brain-drain.Not taxing (or tax credits &#x2F; refunds ) for line-of-business software isn&#x27;t really excusable.It&#x27;s bad that the law in the US has been changed in a cliff-edge way though.

<a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204565">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204565</a>Software is being singled out

I don&#x27;t think you understand the post.

Try explaining that to a startup with less than 5 years of runway left.

&gt; This isn&#x27;t changing if it is taxed or not.This is untrue. The rule is not about taxation, but deductions&#x2F;expenses. If your expenses cover most revenue, you owe little in taxes. With this rule, a particular type of expense (software engineering salaries) is no longer deductible from revenue to calculate taxable income over which taxes are owed. So you might previously owe no taxes, but now you do. The deduction might carry over to the next few years and eventually (after 6 years) you will reach the same point - assuming your salaries don&#x27;t go up and your business doesn&#x27;t grow. The remainder in deductions will be returned after the business stops employing software engineers. I&#x27;m not sure why anyone would want the tax code to incentivize a business outcome that all of us would consider failure.

This isn&#x27;t changing if it is taxed or not.    It is merely about if the tax should be paid in the year the work was done, or spread over the 5 years after the work was done.

&gt; Almost all work is tax deductibleWhat really? How does this work.

Almost all work is tax deductible. This isn&#x27;t just for software developers and employees still pay taxes. The issue is software development is being classified as research which is one of the few areas where salaries aren&#x27;t directly deductible but instead need to be deducted in pieces over five years.

Maintenance and bug-fixes seem to be outside the R&amp;D rules, so that expense would be 100% deductible in the year charged.

&gt; other white collar workSome examples of white collar work that builds long-lived assets but where the work isn&#x27;t required to be amortized over long periods of time:- marketing collateral development, unless it is done by engineers- development of standard legal documents like contracts- development of HR policy- development of financial processes &amp; associated reporting, unless done by engineers- art development (e.g. for packaging and other collateral)- building customer lists, unless it is done through software by engineers- developing service offerings (e.g. Costco membership)Software is not fundamentally different than any of these other white-collar assets that are used to build companies, except that it typically requires more ongoing maintenance.

Software is a special kind of white-collar work which promises to simultaneously provide a sense of entitlement as well as an equal measure of frustration.Lately (since 1971?), the balance has tilted over to the other side, so I welcomed any move to restore it :)

I posted a short explanation here [0] on the thread the other day, but the even shorter explanation is that &quot;software development shouldn&#x27;t be taxed&quot; is not an accurate description of what repealing the change to Section 174 would do. This discussion has nothing to do with what work gets taxed (all profit is taxed no matter the industry) and everything to do with what counts as &quot;profit&quot;.The Section 174 changes altered the accounting method that software development companies must use for calculating their profit for tax purposes. Starting in 2022 software dev must be treated not as an expense but as an investment in an asset, such that you&#x27;re now required to amortize the expense over 5 years instead of deducting it from your revenue the year you spent the money.The gigantic problem with this change is that without the ability to expense software development expenses as expenses, a new software startup can very easily be considered profitable in their first year because only 10% of their software development-related expenses get to be counted as expenses.And note that, contrary to what you say, most white-collar work is not treated this way, and software is further singled out from other R&amp;D-type work in that it is the only type of work that is explicitly called out in the section as being required to be marked as R&amp;D. So we&#x27;re not asking for software to be treated specially, we&#x27;re asking why it suddenly changed in 2022 to be treated specially in an extremely negative way.[0] <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204565">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204565</a>

That&#x27;s not the issue. What people are asking for is for software to be treated like every other profession.That&#x27;s how it should be, and that&#x27;s also how it actually was until relatively recently. A new law went into effect that treats software differently. I believe Congress was looking for an easy way to generate extra tax revenue by tapping into the wealth of rich tech giants. Whatever the intent, the workers ended up being the ones who suffer because now hiring people has worse tax consequences than it used to.So all that people want is to undo that, to take away that special rule that applies only to software, and put it back like it was.

Other than it’s nice not to have your profession taxed, what is the argument that software development shouldn’t be taxed as opposed to all sorts of other white collar work?

Because employee salaries are normally deductible as an expense for companies which generally pay taxes on something resembling profit rather than something resembling revenue.  The issue is they are classifying software development as a research activity so the salary has to be amortized over five years with 20% of the expense applying in each of the five years.

Why was the change made to amortize the tax?

When a company that earns $150k&#x2F;yr and hires a software engineer who costs $100k&#x2F;yr, that company should be able to deduct that salary in full.The way it works today they must amortize it, taking only 20% per year. So they’d owe taxes on $130k of $150k, instead of the more rational $50k of $150k.This effort is to restore rationality.

Disclaimer: I’m not an expert, just vaguely interested.My understanding is that previously, software dev salaries would be counted as a business expense in the year they are paid. Now they are amortized over X years on the tax paperwork. As a result, a lot of software companies suddenly show relatively high income, and have a large increase in their tax burden. This is especially hard for startups that were “on the edge” of making it. If the salaries go back to being an expense in the year the salary is paid, the tax burden will decrease again, because apparent company income will be less.

&gt; What is a software dev expenseYou might be more familiar with the term &quot;salary and benefits&quot;.&gt; why should it be tax deductible?Business expenses are tax deductible.

I signed the petition but I wanted to offer an some background for an alternate POV (that I think I mostly disagree with).You have $600k in the bank. You hire 4 people to build a house. The materials for the house cost $200k and the 4 people cost $400k. Total expenses $600k and you now have $0 in your bank. You can deduct $600k in expenses, but!, you now have a house worth $$$$. You have to pay taxes on this house as it&#x27;s an asset and worth $$$$. Your total worth is not $0 (your bank account). It&#x27;s $0 + the house.Change house to software. You created something new. The government is claiming that something, software or house, is worth $$$$I see the point. I have no idea how to value software. I guess the gov might say, to find the value, delete the software, how much would it cost for you to replace it (as one idea)Similarly with other expenses. You have $200k. You hire office workers at $95k each to do some work and buy two $5k PCs for them to use. At the end of the year you have $0 in the bank. The law sees it as you have $0 in the bank + two $5k computers. You owe taxes on that $10k (the 2 computers). For these, you&#x27;re allowed to deprecate them 5 years. So you own taxes on $8k.Note: this issue of equipment being deprecated has killed lots of small businesses, mostly because they are new and unaware (been there (T_T)). If you buy $100k of equipment (furniture deprecates over 7 years), you budgeted $1m for the year with $0 left over (making a product that takes 2-3 years to finish) but you&#x27;ve got to pay taxes on ~80% of the $100k of equipment even though you thought you&#x27;d made no money.Many business opt to lease computers (and furniture?). This way they don&#x27;t own it so it&#x27;s not an asset and they can expense 100%. Unfortunately if you&#x27;re a new startup no one will lease to you as you have no credit history (been there (T_T))Under the new rules, on the ~3yr software project (like a game) with $1m per year budget, after the first year you&#x27;d owe taxes on $1m because you could not deduct any salary expenses. All of your employees are doing software dev by the definitions of the new tax law.

In any other company, employee salaries are counted as an operating expense against revenue, much like raw materials, utility bills, etc.If you sell $100 of goods and you have $100 of expenses, you have $0 net income and owe no taxes as a company- you&#x27;ve made no money!Because software salaries are counted as research and development, and 174 forces you to amortize the expense over five years, you are now in a much harder position:You sell $100 worth of software and have $100 of developer salaries. You haven&#x27;t made any money, and you have $0 in your bank account. The government compels you to not expense more than $20 of those salaries, and taxes the remaining $80 of revenue. You are now bankrupt.

What is a software dev expense and why should it be tax deductible?

I&#x27;m going to preface this by saying that I support broad liberalization of border controls; immigrants are the backbone of the USA, the engine on which we run, and we should encourage immigration and make it easy for immigrants to settle here. We have the space and resources; anyone who tells you otherwise is lying to you for political gain.So, that said: H-1B shouldn&#x27;t exist for software. The point of it is to fill jobs that cannot be filled by an American for some reason; a condition that doesn&#x27;t exist in software development. Hire immigrants as software engineers, fine. But find a way to do it that isn&#x27;t bullshit.

It&#x27;s a lottery with ~1&#x2F;3 winning chance.I&#x27;d say most of foreign devs in the US are actually L-1 that is actually worse because L-1 prohibits the dev from changing jobs unless the dev gets a new visa.

It&#x27;s subsidy for big corporations so they can get cheap talent whilst removing incentives for domestic workers to learn the trade or upskill. You also get more people competing for resources which means higher prices. Quality of life going down whilst corporations getting richer.

AFAIK there are a handful of companies that gobble the whole yearly allowance of H1B visas among them. Usual suspects are BigTech and large consulting groups. The later act as intermediaries: they sell worker hours at a higher rate, skimming the difference between their prices and employee&#x27;s salary. If they were somehow barred from H1B program the H1B visa holders would presumably find better paying jobs elsewhere.H1B rules around changing jobs means that even if the employee joins at a market-level salary when they come to the US, they tent to stay at the same company much longer and can be exploited. The new company has to go through a lengthy paperwork process to allow the visa holder to switch jobs. Also, since the tech world tends to use things like stock options &#x2F; RSUs &#x2F; monetary bonuses for large parts of compensation package and those do not count towards &quot;salary&quot; you may have a situation where an h1b holder on paper seems to be paid fairly but in practice get only about 40-50% of what their peers get.If they were allowed to change jobs freely they would be able to negotiate their compensation fairly. The companies would be less intensified to hire H1Bs to save money and would also consider local talent for same positions. Everybody would win: both H1B visa holders and their families and American workers, too. The only losers would be consulting firms (not a huge loss, to be honest, most of their employees are overseas anyway, so the can absorb the cost) and BigTech (they have enough money, anyway).There are other problems for H1B holders, like getting a green card is something their employer, and not them, can do - another area for abuse. And then some nationalities have to wait much longer to go through this process then others (essentially, the US migration service says that the country has too many people from India and Pakistan already, thank you very much), and there are other issues I don&#x27;t recall.

There are approximately 390,000 H1B tech workers in the US. H1B is meant for roles where American workers are not available to fill the job (which is obviously being abused). The tax deduction issue that this post is about is specifically about exacerbating the loss of jobs. Fixing H1B would solve this job issue many times over.

maybe we can do more than one thing at a time

Maybe we should focus on fixing H1B first?

I make said argument fully aware of the point of such schemes. It’s why I suggested, “You know, this is a good opportunity to rebalance the scales somewhat by utilizing a shared goal to extract reasonable concessions.”

The whole point is leverage&#x2F;precarity.

It’s a double taxation thing. If the employer is paying taxes abroad (as in, a net positive payment to that country’s tax collection agency), then we should absolutely give them the IRS break on labor here; if they’re not paying taxes abroad, then they’re taxed on said labor here.The idea is to reduce offshoring as a means of dodging tax liability for multinational firms. If they want the tax cut here, they gotta pay up everywhere else they do business.

&gt; provided that employer pays local taxes in those countries for those roles.This was phrased a bit confusingly, at least to me. Can you explain?

Exactly this. If the aim is to bring back physical manufacturing, bring back software &quot;manufacturing&quot; as well.

If we’re being honest, every country should want to preserve high paying jobs for its citizens. Citizens that get paid well have more spending money, which drives domestic economic growth, which creates more jobs…you get the idea.Outsourcing and exploitative visas are a negative feedback loop that shrinks the actual economy vis a vis stagnant or decreasing wages and higher employment precarity. To have a healthy domestic economy, domestic employment must be prioritized.

&gt; Keep good paying jobs in the USAUh oh!&gt; give them Green Cards instead of precarityOh, right, yes! :D You had me for a minute.

&quot;If we need immigrant labor, give them Green Cards instead of precarity.&quot;This is counter-intuitive but absolutely the right answer. Giving immigrant employees full bargaining power will murder H1B mills. And no waiting periods in precarious limbo either. If you want an immigrant worker, they automatically get all bargaining power as an American and then you make your decision based on the market forces.

That’s the neat part of the Permanent Residency (Green) card: you don’t have to stay forever. What that change does is destroy outsourcing and H1B visa mills by forcing employers to hire domestically first, and actually go through the process of sponsoring an immigrant’s Green Card if they want to hire cheaper foreign labor.It does not deter expats, it protects them from exploitation and abuse by employers.

&gt; Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity.I&#x27;m all for giving more people a faster path to a green card if they want it.But should a person really have to get permanent resident status to have a decent job here? If someone wants to work for a few years in the tech industry in the US but expects that they may want to go back to their home country (or another country), and if they and their employer pay the appropriate taxes, what&#x27;s wrong with that? Similarly, if I as an American citizen wanted to work abroad for some period without having pre-decided to become a permanent resident ... why is that harmful?

I’m all for reverting that part of the tax code, but only on the condition that it’s inapplicable to H-1B visa or foreign worker salaries&#x2F;payments, provided that employer pays local taxes in those countries for those roles.Keep good paying jobs in the USA. If we need immigrant labor, give them Green Cards instead of precarity.

Thanks - interesting to focus on tax cuts for the already rich but I guess it does make sense if the people here want it.

So you believe that the majority of HN commenters support the Big Beautiful Bill:Adding trillions in unfunded liabilities to the US debt, kicking tens of millions off of Medicaid and food snaps, allowing the Trump administration to ignore court rulings just to name a few. Arguably the worst bill in the history of the US.Tech bros putting their personal wealth and greed ahead of what is best for society.Because let&#x27;s be honest here. That is the only reason you&#x27;re posting this now of all times i.e. in order to help push support for the bill ? I really thought HN was above cynical politics.

The number of threads and the comments in those threads.e.g. from a few days ago:<a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44208063">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44208063</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44208875">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44208875</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44207240">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44207240</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44205579">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44205579</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44205479">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44205479</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204864">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204864</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204808">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44204808</a><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44188578">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44188578</a>I realize listing a few examples doesn&#x27;t prove anything, but when I&#x27;ve skim these threads, I see lots of comments like that and few counterarguments. Hence my impression.

&gt; but this issue has as close to a community consensus as HN getsCurious how this is assessed of you could share?

Oh yes it&#x27;s still helpful - that date must be from an earlier version of the letter. We&#x27;ll fix it!(And thanks— I can&#x27;t believe I missed that!)

The top of the form says &quot;[Letter text -- Please sign by June 4!]&quot; -- is it still helpful to sign?

Yes, it is possible to care about more than one thing.YC was founded more than 20 years ago, and I don&#x27;t recall any lobbying on the issue of employee tax treatment. If they do care about this they are being super quiet about it.

It&#x27;s possible to care about more than one thing. Who doesn&#x27;t?

It&#x27;s much worse than that.  The whole US tax system is severely regressive, with labor paying up to 50% incremental rate if your income is low enough, and return on capital paying as little as zero if you have enough of it.

Once a startup hits series A, early exercise is often $X0,000 and a lot of people cannot afford to take a speculative bet with that kind of money.

Can’t you just exercise early to avoid AMT?

Interesting that YC is jumping on this tax code thing, but the shitty tax situation for employees trying to hold onto the equity they&#x27;ve earned is just ignored.The number one problem for startup employees is that the AMT tax makes it impossible to exercise options in a company that is doing well. YC is showing us that they will fight for changes to the tax code when it benefits their bottom line directly, but are silent when it comes to helping startup employees hold onto equity that they have earned.Think carefully before joining a YC startup as an employee.

I firmly believe 174 has to be repealed. Like many bills and regulatory overreach in the US, 174 does not promote and support entrepreneurship, risk-taking, investment, etc.All I am saying in my prior comment is that clever treatment of your engineering costs can improve tax outcomes. We have done just this --under the guidance of our tax attorneys-- and have had no problems at all.Of course, a company that is a pure software enterprise and not multi-disciplinary, like us, is, well screwed.Keep in mind that at year 6 you are effectively deducting your full R&amp;D costs, even for a pure software company. The real cost is the TVM due to the phase shift, at year six you reach steady state (assuming steady costs).

If it&#x27;s software, you do need to amortize 100%. Section 174 (as amended by the TCJA) has specific language to this effect [1]:&gt; For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.i.e. it needs to be amortized. That&#x27;s the part that people find most objectionable -- software development is special-cased for unfavorable tax treatment that does not apply to other fields.[1] <a href="https:&#x2F;&#x2F;uscode.house.gov&#x2F;view.xhtml?req=granuleid:USC-prelim-title26-section174&amp;num=0&amp;edition=prelim" rel="nofollow">https:&#x2F;&#x2F;uscode.house.gov&#x2F;view.xhtml?req=granuleid:USC-prelim...</a>

These are questions for a tax attorney.If you are a pure software company (no hardware or other activities) your options are rather limited.Also, as I said in other posts, at year six you reach steady-state and are amortizing the full amount every year. Example:<pre><code> amortization for each year
 R&amp;D year 1 year 2 year 3 year 4 year 5 year 6
 year 1 1,000,000 100,000 200,000 200,000 200,000 200,000 100,000
 year 2 1,000,000 100,000 200,000 200,000 200,000 200,000
 year 3 1,000,000 100,000 200,000 200,000 200,000
 year 4 1,000,000 100,000 200,000 200,000
 year 5 1,000,000 100,000 200,000
 year 6 1,000,000 100,000 
 
 total amortization: 100,000 300,000 500,000 700,000 900,000 1,000,000 
 </code></pre>
Not ideal, of course, but if you are not a &quot;flash in the pan&quot; company, at year 6 it feels like this rule doesn&#x27;t exist, other words, you are amortizing the full $1MM every year. The TVM on the deductions you could not take until steady-state is reached is part of the hit you take. The other is taxes on profits from operations during the early years.Most companies don&#x27;t have profits rise exponentially during the first few years, so it might not be too bad. Also, there are many ways to mitigate this. For example, section 179, which allows businesses to deduct the full purchase price of qualifying equipment and software in the year it&#x27;s put into service, rather than depreciating it over several years. In other words, instead of paying taxes on your profits, use that money to buy GPU&#x27;s computers, tools or whatever you might need. Easy.A tax attorney is essential if you want to minimize tax liabilities intelligently and within the bounds of the law.But, yes, 174 needs to go back to full annual deductions.

Could you use the vibe coding loophole to eliminate all uncertainty: the AI has the answers you need you just need to develop by continuously prompting and reviewing until the solution is ready for production?

Signed.That said, here&#x27;s my perspective on 174 (which should be reverted to full deduction on the year the expense is incurred).You do not have to amortize 100% of your engineering costs. Not even close.Here&#x27;s the key:<pre><code> Development costs incurred to remove uncertainty are amortized. 
 All other costs are deductible during the tax year where they are incurred.
</code></pre>
How does this work?You are going to design a new robot arm.In January, you spend $100K to &quot;remove uncertainty&quot;. In rough strokes, this means discovering all the things you don&#x27;t know and need to know for this robot arm to become a product. This amount will be amortized over five years under 174.Now, with uncertainty removed, you spend an additional $1.1MM from January until December for engineering implementation. No uncertainty being removed. Just building a product. This is 100% deductible that tax year.Analogy: You want to build a new brick wall with specific properties. You spend $100K to develop a new type of brick and $1.1MM to build the wall using that brick. The $100K is amortized, the $1.1MM is deductible in one shot.BTW, at year 6 the amortization schedule reaches steady-state and you are amortizing the full $100K every year. In other words, the impact of 174, if treated intelligently, is the time value of money until steady state is reached for the engineering costs incurred to remove uncertainty.<a href="https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;cfr&#x2F;text&#x2F;26&#x2F;1.174-2" rel="nofollow">https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;cfr&#x2F;text&#x2F;26&#x2F;1.174-2</a>

I guess I understand internet freedom causes better. Also, they are universal worldwide, this is USA specific

&gt; internet freedom isssuesFreedom - an essential public good - is much different than using HN for lobbying for tax policy that favors YC.You know that doing this is a big change. Why not be straightforward about it - including whose idea it is, what the parameters are, what the new policy is, etc.? If you feel you can&#x27;t or feel hesitant, then you know something is wrong.It changes the nature of HN in my mind, to something manipulative - not unlike other social media, and not unlike the trend in other businesses who embrace manipulation to greater and greater degrees.We each have a personal responsibility to the world, as adults, to stand up for essential values. If we don&#x27;t, in each of our communities, workplaces, and homes, who will? We are the only ones here; we aren&#x27;t kids (not that you said we are, but to clarify the point) who can destroy things and leave it to the adults; nobody else will come in and save us.&gt; getting back to HN&#x27;s rootsYou can see a lot of companies and politicians using that - find some historical precedent and claim that is the &#x27;roots&#x27;. There are many more roots then that.

pg used to do it semi-regularly, especially on internet freedom isssues (edit: and software patents, IIRC), so arguably this is getting back to HN&#x27;s roots.I remember he did an anti-SOPA thing on HN which involved some kind of banner at the top of the frontpage. It&#x27;s probably saved at archive.org somewhere.

It has nothing to do with &#x27;stupidty&#x27;. There are many other stupid things in the world - many much more consequential than tax policy and which are also discussed on HN. Where is the lobbying for those issues?

But who is advocating against this reform? Lobbying against stupidity should be generally acceptable.

Good question. I&#x27;m not certain myself why. I am not from the USA, so I don&#x27;t see how it affects me. Also, probably unfounded, but I am somehow suspicious if this is for the benefit of software developers, or billionaires.

The main issue to me is now every political issue that isn&#x27;t raised here makes HN complicit in its success&#x2F;failure. Once HN starts down this path it can only continue and accelerate or else face accusations of support&#x2F;opposition through silence.

May I ask why?It&#x27;s expressly the intention of democracies to hear from constituents (and conversely: groups of constituents). That we happen to call that feedback loop &quot;lobbying&quot;, and that the term carries some societal baggage from corporations using&#x2F;abusing it is unfortunate, but shouldn&#x27;t be an indictment of what is otherwise a democratic function.Some group FOO with a shared ill should be able to convene about it and petition congress about it.

Somehow I&#x27;m not a fan of HN using this community for lobbyism purposes.

Exactly, this letter refers to the &quot;reconciliation bill&quot; without mentioning the better known (and more notorious) monikers &quot;Big Beautiful Bill&quot; or &quot;One Big Ugly Bill&quot;.There are so many horrific things in it, the bill must be fully opposed, not endorsed with minor changes.

Isn&#x27;t this tied to the budget bill (&quot;One Big Ugly Bill&quot;) that effectively removes the last way federal judge&#x27;s can hold anyone in the Trump admin accountable?

Yes, but with strong exceptions against offshoring software development labor and H-1B abuse.Both of these problems are rampant. I’ve seen entire shops with underpaid foreign workers and mass layoffs with workers replaced with offshore and nearshore firms.

Just my two cents of course, but I think this is an excellent post for HN.  One of the most directly relevant to people in this community (even those who don&#x27;t seem to understand why) in a very long time.

Sure, YC is a business. But HN has so many people building software that there&#x27;s also a community interest here—otherwise I wouldn&#x27;t have suggested this thread.pg used to do this kind of thing on HN from time to time, especially on internet freedom issues, so this is a bit of return-to-roots for the site. SOPA is the one I remember but there were others.

Possibly, but I think if YC companies could get away with just cutting everyone they would too.I don&#x27;t doubt there&#x27;s an impact here, but it&#x27;s not because they have a real interest in any other topics that concern me and hiring, H1B and so on.

Devils advocate might say1. Lots of groups want to pay less tax to suit them. Just because it benefits us doesn&#x27;t make the lobbying logical.2. We call ourselves builders. But you presumably can&#x27;t claim the cost of building your house against income tax. So why is out building different.3. Come on; be honest: software development was always the loophole. You have coders building next year&#x27;s features and you are saying that is a legitimate expense against this year&#x27;s profit. You couldn&#x27;t have made profit this year without a half implemented unreleased AI sparkle?I really think the law is silly from a practical point of view but it&#x27;s good insofar that other countries&#x27; silicon valleys need a chance ;)

This is something that both impacts them and impacts you if you&#x27;re a developer.This tax treatment can increase the cost of a dev by 5-15% which leads to less hiring and a looser job market. Which will impact us even if we&#x27;re not looking for work because most companies look at market rates when deciding raises.

This is less on that specific topic and more general: While I enjoy the hacker news forums a great deal, I&#x27;ve no relationship with YC as an org. I am not sure that YC has any particular interest in things that might impact me as an individual contributor in an org as much as it impacts them.Understandably there&#x27;s an everyone for themselves aspect here, but that makes these kinds of call to actions a bit hollow to me.

If the company is a pass through entity, I&#x27;m pretty sure this nets out to zero. I don&#x27;t know how this nets out under a C corp.

A common arrangement is for a closely held corporation to rent its space from another corporation or LLC held by the same owner.  This allows the asset to be protected from liability as well as simplifying accounting by splitting it into two businesses, the core business and the real-estate business.  Tax-wise, it&#x27;s a wash, if the income passes through to the same owners.

Question: say you buy the equipment personally and then rent it to your business. What does the tax treatment look like?

As a business owner, I&#x27;ve been adversely impacted by this.  I still can&#x27;t wrap my head around how this is legal or sustainable.  If I buy $1MM of plant and equipment, I may not be able to expense it all in year 1, but I can relatively easily get a loan to finance the purchase of such--and manage my cashflows.  The same is not for devs.  I cannot easily get a loan for $1MM in dev salaries.  In my own case, I don&#x27;t need the loan to pay the salaries.  I need the loan to pay the taxes for the portion of the salaries I cannot deduct as an expense.  It&#x27;s just insane.

Happy to support this, desperately needs to be changed.

It found it helpful that it was presented that simply. The point isn’t what else is or isn’t deductible, it’s that engineering salaries went from being deductible to being amortized.

&gt; 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 [..]I&#x27;m not sure it&#x27;s helpful to simplify quite that much, doesn&#x27;t this usually depend on whether we&#x27;re talking about operating expenses (typically rent, utilities, salaries, supplies) or capital expenditures (typically buildings, land, intangibles...)?

&gt; That&#x27;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 company purchasing it is demonstrably willing to pay?

That&#x27;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.I&#x27;m not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you&#x27;re expected to keep extracting value from it over the years, so you can&#x27;t get a deduction for the whole expense when you first pay for it.If that&#x27;s what this is about, it&#x27;s absurd not for the reason you say (salaries are not a bad proxy for value, since you expect the profit will be greater) but because you&#x27;ll probably keep paying for maintenance and evolving the software.

&gt; That&#x27;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&#x27;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.

&gt; That&#x27;s nuts, since a payroll should never be considered an asset.That&#x27;s because it&#x27;s not &quot;a payroll&quot;. When a payrolled resource builds a combustion engine that powers the office where the rest of the payrolled resources work every day and that engine lasts 15 years, then its a very clearly a capital expense and an asset.

That&#x27;s nuts, since a payroll should never be considered an asset. That&#x27;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.

&gt; under what definition of software engineer?Probably a broad enough definition to net the US Government the greatest tax revenue possible for the effort to enact this.

&gt; Is an FPGA or ASIC engineer still considered a software engineer if they are writing in HDLs?Of course not. The Glorious Leader is rescuing the american hardware sector.

The IRS released guidance back in 2023: <a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;pub&#x2F;irs-drop&#x2F;n-23-63.pdf" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;pub&#x2F;irs-drop&#x2F;n-23-63.pdf</a>It starts on page 23.Plenty of analysis online by tax firms but I&#x27;ll quote from this one: <a href="https:&#x2F;&#x2F;insightplus.bakermckenzie.com&#x2F;bm&#x2F;attachment_dw.action?attkey=FRbANEucS95NMLRN47z%2BeeOgEFCt8EGQJsWJiCH2WAWuU9AaVDeFgmRFq5vwNmVN&amp;nav=FRbANEucS95NMLRN47z%2BeeOgEFCt8EGQbuwypnpZjc4%3D&amp;attdocparam=pB7HEsg%2FZ312Bk8OIuOIH1c%2BY4beLEAex6zXXvxYhr0%3D&amp;fromContentView=1" rel="nofollow">https:&#x2F;&#x2F;insightplus.bakermckenzie.com&#x2F;bm&#x2F;attachment_dw.actio...</a>&gt; Generally, activities treated as software development for section 174 purposes include, but are not limited to, the following.• planning the development of the computer software• designing the computer software• building a model of the computer software• writing source code and converting it to machine-readable code• testing the computer software (up to the point that a taxpayer places the computer software into service or determines that the computer software is ready for sale or licensing to others)• producing product master(s), if the taxpayer develops the computer software for sale or licensing to others.&gt; Activities that are not treated as software development vis-à-vis software developed by a taxpayer for use in its trade or business are as follows:• training employees and other stakeholders that will use the computer software• maintenance activities after the taxpayer places the computer software into service• data conversion activities, except for activities to develop computer software that facilitate access to existing data or data conversion• installing the computer software and other activities relating to placing the computer software into service

The answer to all these questions is yes, i don&#x27;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&#x27;t hard.

&gt; For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.For me that sounds like everyone and everything in a company that develops software of any kind, including low-&#x2F;no-code stuff, accounting, HR, travel costs, massages. Like who is not &quot;in connection with the development of any software&quot; in a company that develops software? Without further definitions this is even worse then just software engineering costs.

There is a substantially more definition, but the tl;dr is this an R&amp;D expense, or COGS expense?R&amp;D is amortized, COGS is not.

Yes, this is an insane policy that reflects a complete ignorance of the on-ground realities. It was almost certainly only passed to help the 2017 tax bill&#x27;s legislative scoring by the CBO.I posted about this on Reddit the other day. <a href="https:&#x2F;&#x2F;www.reddit.com&#x2F;r&#x2F;Economics&#x2F;comments&#x2F;1l3lo7j&#x2F;the_hidden_time_bomb_in_the_tax_code_thats&#x2F;mw34jna&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.reddit.com&#x2F;r&#x2F;Economics&#x2F;comments&#x2F;1l3lo7j&#x2F;the_hidd...</a>&gt; Yeah, it&#x27;s pretty much completely insane. Although in your example I think you accidentally picked numbers that actually work out precisely to zero dollars in taxable income. The company (if US-based) would have zero taxable income in the first year because they can deduct 1&#x2F;5th of the salaries (because there is a five year amortization for US companies, and 15 year for foreign companies), so they would have $1m in gross income and $1m in deductions resulting in $0 in taxable income. But you can tweak the numbers a bit to get the result you intended, e.g., $1m in revenue and $2.5m in salary would result in $500,000 additional taxable income under the TCJA&#x27;s version of Section 174 over the previous version of the code, even though in reality the company operated at a net loss. (edit, just looked this up and actually the amortization is dated from the midyear of the tax year in which the expense is incurred, which is also just fucking bonkers, but that means I was incorrect and your example does yield a taxable income, because the first year in your example would have $500k in deductions rather than the full 20% of the $5m expense, resulting in $500k taxable profit)&gt; All of which means that we treat R&amp;D salaries less favorably than ordinary salaries, which are fully deductible in the year they are incurred. So our tax code now not only fails to incentivize R&amp;D as under the previous R&amp;D tax credit regime, it actively treats R&amp;D employee salaries worse than non-R&amp;D salaries. Even though R&amp;D jobs are generally the highly skilled, well compensated, white collar careers we want to keep in this country.&gt; Section 174 also specifically designates all software development as R&amp;D, so there&#x27;s no way to develop software while claiming it is not R&amp;D. I&#x27;m sure accountants have been jumping through hoops in their efforts to reclassify other kinds of product development jobs as not R&amp;D, which is the exact opposite of what R&amp;D tax studies used to do, which was to label as much employee compensation as R&amp;D expenses as possible, because §174 and the related, intersecting provisions of §41 (the R&amp;D tax credit itself), treated R&amp;D salaries more favorably than other salaries. To a certain extent, the OP article understated how much of a swing this revision to the tax code is. It isn&#x27;t just that we are treating R&amp;D salaries worse than we used to, but that we are treating them even worse than we treat other kinds of salaries. Which is bizarre in a world where the policy objective is to retain R&amp;D jobs in the US.&gt; The purpose of capitalization is to match expenses to benefits over multiple tax years. So that the tax payer can&#x27;t take a huge tax deduction up front to generate an economically fictional loss in the short term on an asset that will generate income over the many years. Amortization forces them to deduct the expense of the asset over time as the benefit accrues over time.&gt; This model is a poor fit for software. Construction workers produce an asset with a generally predictable and known useful lifetime and long-term stable value that is independent of the business. You can always sell a building.&gt; Software, however, does not generally create value for very long if it is not subject to continuous development and improvement. It also decays very rapidly when not maintained (e.g. security patches), yet there is no distinction in the tax code between new development and production support&#x2F;maintenance software development. Nor would any such distinction make any sense in reality, because unlike a physical asset software is subject to continuous change and there is little distinction between adding new features and maintaining existing features. This approach to capitalizing salaries contrasts with other capitalized assets like buildings, where most ordinary maintenance costs are deducted in the current year, not capitalized.&gt; The value of software can be much harder to predict than other capitalized assets. Both in terms of the demand, but also in terms of the technical capability to deliver the desired product. Which is why it&#x27;s considered R&amp;D in the first place: there is inherent technical risk in many if not most software projects which is not present in other kinds of economic activities that produce capitalized assets.&gt; Software is often so specialized that it cannot be sold on to a third-party without selling the entire business around the software, including existing customers, distribution and sales channels, and supporting software engineering staff. It&#x27;s not a liquid, fungible, alienable asset the way other capitalized assets typically are. There is no real market for the source code to Reddit, for example, because there is nothing technically special about Reddit. The company&#x27;s value derives from the user base, the community, and the data, not anything particularly special about its software.&gt; The tax code also confuses the output of the software development process with the value software can generate. Software developers produce code. Some of that code is valuable, much is not. Unlike with other capitalized assets, you can&#x27;t know in advance whether the software you produce actually works 100% of the time, even with robust testing and QA. Whereas you can be quite certain that a building will continue to function as a building if it is built correctly. Many software engineers actually regard code as a liability rather than an asset. The more you have to maintain, the more work you have to do to maintain the code base and the harder it is to add new features or debug issues with existing features. So if you can deliver the same capability to your customers with less code, then that is preferable. Which is to say, the output of the software development process is much more loosely tied to predictable economic value than other capitalized assets.&gt; Software is also frequently delivered as a service, which highlights the inanity of treating software as a fixed, long-term asset. The team maintaining a SaaS will handle day-to-day site reliability engineering work, which is never a stable output but needs to be constantly tweaked to match actual usage patterns.&gt; Last, and this is implicit in much of the above, but unlike other capitalized assets, software is never really complete. There are always more features, more optimizations, more bug fixes. Software development is never steady state. Either the software isn&#x27;t being developed actively and quickly loses nearly all value due to code rot, or it is being actively maintained and improved and is producing value. Buildings don&#x27;t stop functioning as buildings when you stop paying the construction workers. Thus, software development does not produce a long-term fixed asset but rather is a continuous service delivery process, where the revenue produced in any given year was produced by the same year expenses to maintain the software. Thus, software expenses and revenues are mostly naturally aligned in a single tax year, and therefore software is not suitable for amortization.

I’m a solo founder and sometimes outsource projects. How does that work if I pay a contractor a few thousand for a project? Are contractors allowed to be deducted fully at 100% expense?

From the wording, it sounds like it applies to contracting non-US resident software development as well.

&gt; This [1] is the only definition the code actually give.Like most of our tax code, its overly complicated by unclear or incomplete codes.The IRS will give guidance with examples, but those examples are still incomplete.Ultimately our tax code always comes down to the filer doing whatever they (a) think they can get away with or (b) are willing to defend if they get audited.

So it applies to software engineers but under what definition of software engineer?This [1] is the only definition the code actually give.&gt; (3) Software development&gt; For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.1. <a href="https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;uscode&#x2F;text&#x2F;26&#x2F;174" rel="nofollow">https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;uscode&#x2F;text&#x2F;26&#x2F;174</a>-----Is a test or QA engineer considered a software engineer?Is an FPGA or ASIC engineer still considered a software engineer if they are writing in HDLs?Is a systems engineer, electrical engineer, or mechanical engineer considered a software engineer because they use MATLAB, etc and use programming to do their design work?Is a sysadmin, DB admin, or other IT staff considered a software engineer because they write software as part of their job?What about a quantitative analyst, data scientist, accountant, actuary, or any of the other maths and analysis adjacent job roles that regularly use some level of programming to do their job (and therefore write software)?What about HR, etc who use excel documents? Excel is fundamentally just a graphical array programming language (and the design of spreadsheet tools is heavily inspired directly from APL). Is anyone who uses excel or builds&#x2F;maintains spreadsheets considered a software engineer?Like software engineering is such a broad field and programming bleeds into every part of modern business at this point.

<a href="https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;uscode&#x2F;text&#x2F;26&#x2F;174" rel="nofollow">https:&#x2F;&#x2F;www.law.cornell.edu&#x2F;uscode&#x2F;text&#x2F;26&#x2F;174</a>&gt; (3) Software development&gt; For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.Strictly speaking every single one of those jobs falls under that role. If you &quot;develop&quot; any software, which arguably includes even making or maintaining excel spreadsheets (as excel is a graphical array lang inspired by APL), then you seem to fall under this umbrella.

Why not claim them as: admins, devops, analysts, testers, technicians, managers? Probably few more. Its really about precisely software development roles? Don&#x27;t we anyway do some of that other stuff regardless?But if you are correct that is supremely dumb, especially in place like US.

You jest, but you’ve also touched upon something interesting. Is this exactly what companies are trying to do? To the IRS: “We employ zero software engineers—only AI ranch hands to wrangle the AI in the right direction.”

They are just product managers and the development is being done by AI agents.

Only if you assume that the 900k in costs is exclusively the salary of 5 engineers. Realistically you will employ other people and have overhead costs like rent, etc., and I assume that other non-salary costs (health insurance, etc.) aren&#x27;t included (b&#x2F;c I assume health insurance, like rent, is a company-wide overhead cost and that companies aren&#x27;t expected to carve out what portion of that is going to the software folks but what do I know?).But if we more realistically assume it&#x27;s 3 software folks at 200k, then the taxable profit is 580k (100 profit + 3*(200k salary - 40k ammortized))

This seems like the biggest reason behind the mass layoffs, not the end of ZIRP.

&gt; That gives you a profit, from a tax perspective, of $820k.&gt; But you only have $100k of actual dollars.&gt; Good luck paying your taxes!a lot of people here are conflating &quot;taxable income&quot; and &quot;the amount owed in taxes&quot; for some reason.if I earn $100&#x2F;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&#x2F;year in taxes.)depending on the tax rates and the locality of that business, the amount owed on tax is going to be anywhere from $0 to $50, and it is going to heavily favor the low end of that spectrum. I don&#x27;t think any business pays 100% of its taxable income in taxes unless they have been heavily fined.$100k is likely far more than enough to pay the tax on $820k of taxable income for a business. It could be enough to pay that tax bill 10 times over, it&#x27;s hard to say.my point is that taxable income != tax owed.

My taxes (flow through LLC) are significantly higher than my income for 2024 (like hundreds of k).

Just to drive the point home very explicitly:That means, in the given example above, you are able to deduct $180k that first year instead of $900k.That gives you a profit, from a tax perspective, of $820k.But you only have $100k of actual dollars.Good luck paying your taxes!

You don&#x27;t. That&#x27;s how bills are passed: everyone adds a little of what they want. To the extreme, it&#x27;s called &quot;pork barrel politics&quot;, but there&#x27;s a whole continuum between that and a basic compromise.

You contact your representatives in Congress (mail, phone, in person at town halls and such) and say &quot;hey, stop passing giant omnibus bills&quot;. You encourage others to do the same. That&#x27;s all you can do, as a citizen.Unfortunately it won&#x27;t make a difference because the vast majority of Americans simply do not care. So very few people will be putting pressure on their representatives, and nothing will change.

How do we restore only the tax deduction and not pass the rest of the BBB?

I don&#x27;t think that&#x27;s quite right? The value of the asset itself is depreciated over years, sure, but the payroll itself for the employees is just an immediate expense.

But isn&#x27;t the reasoning there that you could turn around and sell that building right away?

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&#x27;t a special situation unique to software engineering.

The reasoning is that the deductions for expenses should be applied for the same year as the income they bring in.  For expenses that will cover multiple years, they are spread out over those years.

Accounting likes to recognize expenses with revenues. If an asset will be producing revenue for five years, its cost is recognized over that same time span.

The only logic was to make the Trump 2017 tax cuts look &quot;revenue neutral&quot;. They were cooking the books so the CBO would give the tax cuts a passing grade.<a href="https:&#x2F;&#x2F;americansfortaxfairness.org&#x2F;ways-means-trump-tax-law-2-analysis&#x2F;" rel="nofollow">https:&#x2F;&#x2F;americansfortaxfairness.org&#x2F;ways-means-trump-tax-law...</a>
Quote: Corporations have traditionally been allowed to deduct all of their research expenses in the year incurred, even though a lot of research pays off slowly so its costs should similarly be written off over time. Adopting this position, and as a way to partially pay for its big corporate-rate cut, the Trump-GOP tax law decreed that starting in 2022 companies would have to write off research and experimentation expenses gradually: over five years for domestic research, 15 years for foreign. This requirement to “amortize” the expense over time reduces the value of the deduction, increasing corporations’ taxable income and requiring them to pay more in income taxes upfront. The Ways &amp; Means legislation proposes to retroactively reverse this provision.

I agree this sounds like bad policy, but what&#x27;s the logic for doing this with actual capital goods then? Doesn&#x27;t that have exactly the same problem of limiting corporate investment?

After five years you are back to the status quo.  It is a short term problem, long term there is no difference between the two.  It primarily hurts young companies that don&#x27;t take VC money, and shortens the runway of those who do.

&gt; Maybe this is a dumb question, but if you only deduct part of their salary in the first year, what happens if you have a software developer for several years?Not dumb at all! In the second year, you get to deduct ⅕th of the previous year’s salary and ⅕th of the current year’s salary; likewise, in the third year you get to deduct ⅕th of the first year’s salary, ⅕th of the second year’s salary and ⅕th of the third year’s salary.The key thing is that in the fifth and following years, a business would deduct a fifth of each of the previous five year’s engineering payrolls. This is not great for a growing business, but it’s murder on a startup trying to grow from zero.

Maybe this is a dumb question, but if you only deduct part of their salary in the first year, what happens if you have a software developer for several years?And then what happens after five years if they are still around?

See also this long-time tax discrimination against software engineers<a href="https:&#x2F;&#x2F;www.taxnotes.com&#x2F;research&#x2F;federal&#x2F;other-documents&#x2F;treasury-tax-correspondence&#x2F;programmers-should-qualify-as-independent-contractors-senators-say&#x2F;124jy" rel="nofollow">https:&#x2F;&#x2F;www.taxnotes.com&#x2F;research&#x2F;federal&#x2F;other-documents&#x2F;tr...</a>

modulo accounting shenanigans company like amazon is ~ unaffected by this rule since its capable of amortizing salaries anyways

That&#x27;s not really the issue (and I say this as a socialist). The issue is that it&#x27;s a weak and very leaky definition that attempts to redefine anyone that touches &quot;software development&quot; 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 increases the cost of operating for the first few years.And importantly it just doesn&#x27;t do so consistently.Orgs should have a higher tax burden. This just doesn&#x27;t do that, instead this is punishing orgs for trying to do new things and rewarding existing momentum (i.e. the large corporations that already have a profitable revenue stream and a long trail of employment history).

You&#x27;re bringing up the question of &quot;what is a fair tax rate,&quot; 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 concentration.)If you agree that we should discourage hiring engineers in favor of management, that concentration is good, and that low corporate tax rates are good, then this legislation is perfect.I say that it&#x27;s good if you believe in low corporate tax rates because this legislation was passed to pay for overall corporate tax cuts, which primarily benefits the largest companies. Amazon actually pays $11.3 billion in income taxes a year (not zero), so on net, even though they have a lot of software engineers, they benefit from this legislation, because they effectively traded having to float money to the government in exchange for lower tax rates.Big companies care about tax rates more than liquidity, because their borrowing rates are cheap, whereas small companies care more about liquidity (they effectively cannot borrow, or it is very expensive) and their profits are low. So this effectively subsidizes big companies at the cost of small companies.

I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue.Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)

Even if Amazon pays no corporate income tax (only one category out of many), they pay much more in taxes per year than you would in several lifetimes.The phrase “fair share” is political, which is to say meaningless. The people who have earnestly invoked this phrase in my experience have resisted requests to define the term and have sometimes launched personal attacks for daring to raise the question. Will you break this streak? What in concrete terms is Amazon’s fair share? Your fair share? If they differ materially, why?I’m a capitalist and therefore wish zero ill toward you. Cronyists, authoritarians, and collectivists may want to abuse you, and that is a contemptible way to treat one’s fellow humans. Both parties to a free exchange benefit. Both sides can win because it is not a zero-sum game. As a matter of fact, you are advocating for a game that your side cannot possibly win. Consider that Amazon has enormous incentive to hire the very tippy-top best accountants and tax attorneys to find every crack in the tax code that middling staffers and nepo hires can barely scribble. It does create some benefit to society in the form of the incomes that these highly paid tax pros generate, the comforts it affords them, and the downstream jobs demand for those comforts creates. But in the big picture, it’s adversarial rather than constructive. Certainly we can come up with a more peaceful and constructive arrangement.

&gt; what is the corporate tax rate?21%&gt; It&#x27;s not 100%, so you&#x27;re deducting a fraction developer&#x27;s salary from your income, right, you&#x27;re not saving that much on your tax bill each year. you&#x27;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&#x2F;year; 3 engineers @ $200,000&#x2F;year = $900,000&#x2F;year. $1,000,000 in sales.year 1: Company makes $1,000,000 and pays $900,000 to engineers for a $100,000 cash profit; it deducts $180,000 from $1,000,000 for a $820,000 paper profit, and owes $172,200 in taxes. Since $172,000 &gt; $100,000, it has a $72,000 cash loss for the year. There is not year 2.Or maybe it raises enough capital to have a cash cushion. A similar thing happens in year 2: it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $360,000 from $1,000,000 for a $640,000 paper profit and owes $134,400 in taxes, still more than the cash profit. The cumulative cash losses are now $106,400.Once again in year 3 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $540,000 from $1,000,000 for a $460,000 paper profit and owes $96,600 in taxes. Hey, it doesn’t owe more than it made in taxes! On the other hand, its cumulative cash losses are now $103,000. Three years, three million in revenue, 2.7 million in expenses but it’s in the hole by $103,000, still more than its annual profit.In year 4 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. It still has a cumulative $61,800 cash loss.In year 5 it makes $1,000,000 and pays $900,000 for a $100,000 annual cash profit, deducts $900,000 from $1,000,000 for a $100,000 paper profit and a $21,000 tax bill. Good news, the company now has a cumulative cash gain! At the end of five years and $5,000,000 in sales the capital owners have made … $17,200. The engineers made $4,500,000 and the government made $483,000.In year 6 it makes $1,000,000 and pays nothing (this is very unrealistic, because in the real world every product requires maintenance …) for a $1,000,000 cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. People complain that it’s only paying a 5.88% tax rate, ignoring the years of amortised losses. But hey, after $6,000,000 in sales the owners finally have $958,400. They take it as a dividend and it gets taxed at the top marginal rate, so they pay an additional $354,608 in taxes.In the real world, of course, sales may or may not cover salaries, sales may increase or decrease from year to year, markets may change and so forth.&gt; I don&#x27;t care what the law says, pay enough that no one can say that you&#x27;re a lamprey on society, please.That’s an impossible target. Any random person can say, unreasonably, that someone else is a ‘lamprey on society.’

Just to give you some perspective...this comment:&gt; I&#x27;m sure the capitalists among you will want me dead for saying this, but: pay your fair share.Is the equivalent of a finance person saying to a developer &quot;can&#x27;t you just hire more developers and we can build our product faster&quot;. In other words, it&#x27;s not that simple.

I haven&#x27;t looked at the tax rule in detail, but it looks like the &quot;half year convention&quot; for amortization applies.The &quot;half year convention&quot; means that when you amortize a purchase, it&#x27;s assumed you purchased it exactly halfway through the year, so you can only deduct half the amortization in the first year that you would normally (and the other half is in the year after the depreciation period).So it looks likeyear 1: 1&#x2F;10year 2: 1&#x2F;5 + 1&#x2F;10year 3: 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;10year 4: 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;10year 5: 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;10year 6: 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 + 1&#x2F;5 (the last 1&#x2F;5 being the other half from year 1 and the 1&#x2F;10 from year 6).

&gt; I&#x27;m sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don&#x27;t care what the law says, pay enough that no one can say that you&#x27;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.

say I work for a company for 5 years as a software developer, at $200k&#x2F;yr the entire time. is this how it works:year 1: company deducts $40k: 1&#x2F;5 of the salary for year 1.year 2: company deducts $80k: 1&#x2F;5 of the salary for year 2, and 1&#x2F;5 of the salary of year 1.year 3: company deducts $120k: 1&#x2F;5 of the salary for year 3, 1&#x2F;5 of the salary for year 2, and 1&#x2F;5 of the salary for year 1.year 4: company deducts $160k: 1&#x2F;5 of the salary for year 4, 1&#x2F;5 of the salary for year 3, 1&#x2F;5 of the salary for year 2, and 1&#x2F;5 for year 1.year 5: company deducts $200k: 1&#x2F;5 of each of my 5 years of employment. I leave the company after year 5. Year 1 of my employment is fully deducted.year 6: company deducts $160k: 1&#x2F;5 of years 5, 4, 3, and 2. Year 2 of my employment is fully deducted.year 7: company deducts $120k: 1&#x2F;5 of years 5, 4, and 3. Year 3 of my employment is fully deducted.year 8: company deducts $80k: 1&#x2F;5 of years 5 &amp; 4. Year 4 of my employment is fully deducted.year 9: company deducts $40k: 1&#x2F;5 of year 5. Year 5 of my employment is fully deducted.what is the corporate tax rate? It&#x27;s not 100%, so you&#x27;re deducting a fraction developer&#x27;s salary from your income, right, you&#x27;re not saving that much on your tax bill each year. you&#x27;re paying tax on the income you used to pay the developer.I dunno man. In a world where places like Amazon pay $0 in income tax each year, I kinda feel like companies should be paying more taxes. companies get all kinds of deductions that employees don&#x27;t get themselves, and will never get. businesses have a whole heap of unfair advantages already.I&#x27;m sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don&#x27;t care what the law says, pay enough that no one can say that you&#x27;re a lamprey on society, please.

The logic outlined in other posts is that this is because software is seen as an asset that nets dividend. As such, like with houses you can’t deduct all the costs at once because you keep extracting value out of it.I’m not sure whether I understand why that now applies only to software and not other things.

Theoretically it’s the same with any asset you pay someone to make.If you pay someone to make a chair, you don’t deduct the salary. Instead you create an asset valued at what you paid to build it, then depreciate it over time.The arguement for this is that it would be inconsistent to do otherwise. After all, why should buying a chair from someone else be different than paying an employee to do it?It’s worth noting that this change brings the USA in line with international financial reporting standards, so it’s not like it’s some crazy unique idea or anything.

&quot;Other payroll employees&quot; is doing a lot of lifting.The question is really, payroll is made up of builders, vs nonbuilders.Are devs different from other builders? The dirty secret is that they are not.Ford engineers, P&amp;G food researchers, and architect salaries are capitalized just like Software development costs.But, in the case of software development, only those builders are getting a nice subsidy.A world where we treat all workers as expenses is not likely since it means the end of US GAAP. So, we must treat all builders like builders . There shouldn&#x27;t be special favors for some any specific builder group.

Forgive the naive question, but is this different than other payrolled employees? So for normal employees you get the deduct the year it&#x27;s paid, but for some reason for software developers you have to amortize it?

How does this compare with other types of engineers&#x2F;employees?

It may result in an outsized penalty to bootstrapped companies but being VC funded doesn&#x27;t make you immune to this. VC funded companies with revenue will not be able to offset their revenue by reinvesting in R&amp;D (software development) expenses, so in some cases they may be seen as having a profit when they previously wouldn&#x27;t have. In those cases they&#x27;d have a tax burden.

Doesn’t this also unfairly penalize bootstrapped companies? VC track companies seldom have taxable profits.

If you sold the software asset to another company you don’t get an asset on your books.

Does it apply to solo companies that provide software consulting to others? I guess it doesn&#x27;t for S-Corps, because of passthrough, but might for C-Corps?

Also sounds like a staging bonus RSU scheme in tech firms, isn&#x27;t it?

Start ups are hard, most fail. But what rational national policy makes is several orders of magnitude harder to succeed during the riskiest period by adding tax provisions on pretend profits?

Let&#x27;s be honest. At a bunch of shops the engineers hired in year 2 will never be properly recouped because the company will be out of business in less than 7 years.

Or any company in its first 5 years of operation. (Or any company, period, within the first 5 years of the law being introduced.)It takes 5 years to fill the pipeline, so even if the steady state would be fine, getting to that state might be impossible.

Most startups won’t make it five years especially if they have to raise or borrow money to pay taxes on phantom profit.There is no rational basis for this tax change it was a vindictive attack on blue states in the first Trump admin and an attack on California and SV in particular along with the SALT tax changes.

It&#x27;s also bad because of the time value of money (deductions in the future are worth less than deductions now).But I agree that much of the outrage seems due to a confusion that 80% of the deduction is lost completely (vs deferred).

This description is misleading (as many of them seem to be), because you&#x27;re only describing the first year.After 5 years of constant expenses, the deductions match the costs. If expenses diminish, deductions exceed costs.-&gt; this is bad (in the short term) for companies that are growing.

Corporate income taxes are treated differently than personal income taxes. You absolutely can deduct corporate expenses in Canada.

&gt; If you pay a software engineer, that&#x27;s not &quot;really&quot; an &quot;expense&quot;, regardless of the fact that you paid them.If I pay for ... pretty much anything whatsoever ... I cannot write it off my personal income tax here in Canada. Not housing, not food. Medical expenses will come off the bottom not off the top.

Software engineers hired for custom, in house work are not building a fixed piece of software with the intention of letting it loose unchanged for the next five years.Software engineers hired to build product are not exclusively building a finished product, and are increasingly necessary as part of the expense of operating that product long term. Industry trends have gone towards combining and blending developement, security, operations, and design.

Exactly. The issue isn&#x27;t whether capitalizing salaries is &quot;humane&quot; or &quot;inhumane,&quot; as some comments suggest. It&#x27;s about matching expenses to their corresponding revenue. When you develop software that contributes to revenue over a period, those expenses should be spread out. Capitalized items are simply deferred expenses. For example, when you construct a building, construction workers&#x27; salaries are capitalized and added to the building&#x27;s book value, which is then depreciated over time.

Almost all other payroll is deductible. Why is salary for someone building a house deductible, but salary for someone building a for loop a capital expenseLook into when this started and why and you might understand it

If you’re building software that is intended to be used for longer than a year then it should be capitalized.The argument on HN is always just complaining that it’s unfavorable to devs; but it’s perfectly reasonable with regards to actual tax principles.

Then you have to amortize the costs over 15 years, instead of 5.

What happens if you outsource all that to an &quot;offshore&quot; company? Is it considered an expense?

&gt; Can&#x27;t they be deducted the same way as accountants or other functions?No.

How are software engineers different than other people on payroll? Can&#x27;t they be deducted the same way as accountants or other functions?

MmhIf I paid salary of 100k, and invested 100k. Then I made 0 profit regardless, actually I would have a loss of 100k?I guess the difference comes in if I made 200k, so I would have a profit of 100k.Not sure how it affects the pnl, but is it fair to say it doesn&#x27;t affect total tax, just distributes it more evenly across years?

…could you expand on what part is inaccurate?

Your comment would be much more helpful if you explained how op is wrong or linked to another resource or prior comment that did so.

this is not entirely true and i’ve seen the exact same comment regurgitated with the same exact numbers for the past two years. I am not in really in favor of section 174 but i’m tired of seeing misinfo. I have discussed this with a CPA multiple times and its simplified and blown out of proportion in a way that you can’t actually have a conversation about it

So implicitly Trump values foreign developers at 3x domestic ones

&gt; you have to depreciate that over several years (5 in this case).15 years in the case of foreign developers.

It&#x27;s actively being discussed in Congress and is a part of OBBBA.&quot; H.R.1990 - American Innovation and R&amp;D Competitiveness Act of 2025 &quot;<a href="https:&#x2F;&#x2F;www.congress.gov&#x2F;bill&#x2F;119th-congress&#x2F;house-bill&#x2F;1990&#x2F;text&#x2F;ih" rel="nofollow">https:&#x2F;&#x2F;www.congress.gov&#x2F;bill&#x2F;119th-congress&#x2F;house-bill&#x2F;1990...</a>&gt; A bipartisan bill reintroduced in Congress last month could offer long-awaited relief to small tech companies hit hardest by an obscure federal tax change — one that many founders say is threatening their survival.&gt; Industry groups from the Small Software Business Alliance to the National Venture Capital Association and TECNA are backing the bill, which sits in committee. Over 100 House members have signed on. The bill would reverse the changes not just going forward, but also retroactively.<a href="https:&#x2F;&#x2F;technical.ly&#x2F;startups&#x2F;r-d-tax-change-reversal-startups&#x2F;" rel="nofollow">https:&#x2F;&#x2F;technical.ly&#x2F;startups&#x2F;r-d-tax-change-reversal-startu...</a>&gt; On May 13, the House Ways and Means Committee passed “The One, Big Beautiful Bill.” This bill includes several provisions that, if enacted, will be important to businesses claiming research and development incentives:&gt; The bill would suspend the current amortization requirement for domestic R&amp;D expenses and allow companies to fully deduct domestic research costs in the year incurred for tax years beginning January 1, 2025 and ending December 31, 2029.<a href="https:&#x2F;&#x2F;www.crowell.com&#x2F;en&#x2F;insights&#x2F;client-alerts&#x2F;house-committee-passes-part-of-big-beautiful-bill-containing-noteworthy-improvements-to-research-and-development-incentives-for-companies" rel="nofollow">https:&#x2F;&#x2F;www.crowell.com&#x2F;en&#x2F;insights&#x2F;client-alerts&#x2F;house-comm...</a>&gt; The OBBBA suspends required capitalization of domestic research and experimental expenditures for amounts paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. Under the OBBBA, at the taxpayer’s election, such expenditures can be: deducted as paid or incurred under new Section 174A(a),<a href="https:&#x2F;&#x2F;www.skadden.com&#x2F;insights&#x2F;publications&#x2F;2025&#x2F;05&#x2F;the-one-big-beautiful-bill-act" rel="nofollow">https:&#x2F;&#x2F;www.skadden.com&#x2F;insights&#x2F;publications&#x2F;2025&#x2F;05&#x2F;the-on...</a>

ELI5: why is this blowing up on HN this particular week in 2025. Is there a trigger? As it has been known about for a while.

Well, we had massive layoffs, so I don&#x27;t think the incentives worked.

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.

So, after 5 years, they can deduct the entire salary.. this just seems like an incentive to promote long-term employment. Doesn&#x27;t seem like a bad incentive.

Nothing. The calculation has nothing to do with people. It’s about what the company spends - and some kind of spending is capitalized depending on what activity it was related to and what the output was. That doesn’t change if the employee that you paid a salary to leaves, or the company that you bought materials from disappears, etc.

&gt;Depreciating means that if you pay an engineer $200k in a year, in tax-world you only had $40k of real expense that year, even though you paid them $200k.what happens if an engineer leaves after the first year, or at any other time?what happens to the calculations then?

It means you need more money early, to pay taxes on theoretical future profits. That means it costs more. That means you can afford less on the same money. That means that you need to lay off people to maintain the same costs.

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&#x27;t believe warrants the current scale of developer dismissals.Also, the claim that taxes are levied even during a deficit seems incorrect. While I&#x27;m not familiar with US tax law, it&#x27;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.

&gt; 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&amp;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.

for the big companies, this makes enough sense, but theres been new businesses opened since 2017, who did not benefit from that tax holiday. why should they be dealimg with this tax hike for everytime they grow their business?i dont know how this is anti-worker? it&#x27;s an extra cost to growing the number of people youre hiring, where you need them for 5 years. i guess businesses should start witholding RSUs and starting bonuses until youve been there for 5 years to match your tax ammortization?

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&#x27;re also making deductions &quot;earned&quot; in previous years?Basically, I reject the argument that this change is responsible for layoffs. It is not. And changing it won&#x27;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&#x27;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&#x27;t have to be this way.

&gt; In the case of the $200k engineer, you deduct the first $40k in the first year, then you can expense another $40k from that first year in the second year, the third $40k in the third year, and so on through the fifth year. So eventually you get to expense the entire first year of the engineer&#x27;s pay, but only after five years.This actually understates the issue slightly. The amortization is calculated from the midpoint of the first tax year, so actually you only take 10% in the first year. Meaning it takes six years to get back to square one. In your example, you would only capitalize $20k in the first year, $40k for the subsequent four years, and then another $20k in the final year.

I don&#x27;t want to downplay what you&#x27;re saying but many of these costs are eligible for R and d credits unlike most other employees salaries.

&gt; One could argue in the future, for example, that those who operate machines to produce tooling dies, should not have their labor treated as regular expenses, but instead as capital assets because their labor output is captured in assets,In the future? That&#x27;s how it works!&gt; just as Sec 174 treats the labor of software developers as assets.[I was wrong about the following. I misread the text - and the submission title.] That&#x27;s not what 174 does.

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&#x27;t happen is for non-reproducible privileges such as land, intellectual properties, the electromagnetic spectrum, etc.

This wasn&#x27;t my first impression of this, but the more I heard this dicussed the more I&#x27;m forming an opinion that there might be some intentional parts of this that while maybe not being good, make sense from a certain narrow perspective.My assumption is, if tax folks in the US were looking Jealously at US companies with large Multinational presence declaring a lot of their profits abroad. They might have noticed that some of them have large dev presence in US, but through complex accounting, IP transfers, licensing and other actions are able to claim that majority of the value is generated outside of the US.If a company had, say, 100k software devs, 50k in the US, and 50k scattered across other countries, but claimed the value of it&#x27;s software was primarily in Puerto Rico and Ireland...
In that case, I&#x27;d expect questions around the 50k devs in the US.Is software dev the only activity where this is possible - no, but is currently by the far the largest and the largest growth industry.

I keep seeing an objection in this thread along the lines of &quot;what make software so special that it deserves a tax deduction&quot;.Correct me if I&#x27;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&#x27;re a line chef or wait tables, your salary is tax deductible to the restaurant.So it&#x27;s not that we are asking for R&amp;D to be treated &quot;specially&quot; and get a deduction that other companies don&#x27;t have. The problem is that R&amp;D salary expense is being singled out as producing an asset (e.g. IP), and thus being classified in the same category as other assets, like, brewing equipment, a mining excavator, or a pizza oven. Simply put, Section 174 argues to classify people in the same category as things because ... &#x27;these people&#x27;s work outputs may have long-term value, kind of like things&#x27;(?).Allowing Sec 174 to stand is a slippery slope to classifying more and more everyday Americans&#x27; salaries into this category. One could argue in the future, for example, that those who design cars or operate machines to produce tooling dies, should not have their labor treated as regular expenses, but instead as capital assets because their labor output is captured in assets, just as Sec 174 treats the labor of software developers as assets. Everyday people should be concerned by this because if the rule stands, it could be extended to you, too.For those objecting to the equal treatment of R&amp;D employees as all other employees in America of all stripes and vocations, keep in mind that software people have to pay personal taxes on the income, just like everyone else. Section 174 doesn&#x27;t have anything to do with personal income taxes: we all pay income taxes fair and square. The question is whether there is a double-tax on software labor, paid at the corporate level (and in all likelihood, your salary is currently a tax deduction for your company, unless you write software or do R&amp;D).I think the assumption that we are asking for &quot;special treatment&quot; is driving some confusion and grass-roots objection to the movement here, so I wanted to highlight that we are just asking for everyday people who work software and other R&amp;D jobs to be treated just like every other American who works a day job.[edits for clarity]

A lot of people don&#x27;t know what this Section 174 is about, so here&#x27;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&#x27;t do this for software engineers. If you pay a software engineer, that&#x27;s not &quot;really&quot; an &quot;expense&quot;, regardless of the fact that you paid them.What you&#x27;ve actually done, Congress said, is bought a capital good, like a machine. And for calculating tax owed, you have to depreciate that over several years (5 in this case).Depreciating means that if you pay an engineer $200k in a year, in tax-world you only had $40k of real expense that year, even though you paid them $200k.So the effect is that it makes engineers much more expensive, because normally when a company hires an engineer, like they spend on any other expense, they can at least think &quot;well, they will reduce our profit, which reduces our tax obligation,&quot; but in this case software engineers are special and aren&#x27;t deductible in the same way.In the case of the $200k engineer, you deduct the first $40k in the first year, then you can expense another $40k from that first year in the second year, the third $40k in the third year, and so on through the fifth year. So eventually you get to expense the entire first year of the engineer&#x27;s pay, but only after five years.The effect is that companies wind up using their scarce capital to loan the federal government money for five years, and so engineers become a heavy financial burden. If a company hires too many engineers, they will owe the federal government income tax even in years in which they were unprofitable.These rules, by the way, don&#x27;t apply to other personnel costs. If you hire an HR person or a corporate executive, you expense them in the year you paid them. It&#x27;s a special rule for software engineers.It was passed by Congress during the first Trump administration in order to offset the costs of other corporate tax rate cuts, due to budgeting rules.

Companies building software in the US were hit hard a few years ago when the tax code stopped allowing deduction of software dev expenses. Now they have to be amortized over several years.HN has had many discussions about this, including The time bomb in the tax code that&#x27;s fueling mass tech layoffs - <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44180533">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44180533</a> - (927 comments) a few days ago. Other threads are listed at <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44203869">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=44203869</a>.There&#x27;s currently a major effort to get this change reversed. One of the people working on it is YC&#x27;s Luther Lowe (<a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;user?id=itsluther">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;user?id=itsluther</a>). Luther has been organizing YC alumni to urge lawmakers to support this reversal. I asked him if we could do that on Hacker News too. He said yes—hence this thread :)If you&#x27;re a US taxpayer and if you agree that software dev expenses should be deductible like they used to be, please sign this letter to the relevant committee members: <a href="https:&#x2F;&#x2F;docs.google.com&#x2F;forms&#x2F;d&#x2F;1DkRGeef2e_tU2xf3TyEyd2JLlmZH8sGs6hhuVkokgpw&#x2F;viewform?edit_requested=true" rel="nofollow">https:&#x2F;&#x2F;docs.google.com&#x2F;forms&#x2F;d&#x2F;1DkRGeef2e_tU2xf3TyEyd2JLlmZ...</a>.(If you&#x27;re not a US person, please don&#x27;t sign the letter, since lawmakers will only listen to feedback from taxpayers and we don&#x27;t want to dilute the signal.)I&#x27;m sure not everyone here agrees with us—HN is a big community, there&#x27;s no total agreement on anything—but this issue has as close to a community consensus as HN gets, so I think it makes sense to add our voices too.Luther will be around to answer questions and hopefully HN can contribute to getting this done!

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