5 ms·

US only country where developers' salary cannot be expensed the same year

45 points by delichon 2y ago

verdverm 2y ago
For context, this is the Section 174 from the Trump Tax Cuts. Everyone expected it would be reversed before it went into effect, but the 118th congress has been largely unable to pass any legislation. tl;dr - previously companies could choose 1 or 5 years to amortize, now no choice & clarification that most software development counts as capital improvements (like building a factory). Many smaller companies are getting surprise tax bills this year, many of us have been putting it off with standard tax deferments (6 months) https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/ | https://news.ycombinator.com/item?id=38870429 https://news.ycombinator.com/item?id=38870429 (blog post by same Twitter user, Gergely Orosz) https://news.ycombinator.com/item?id=38642461 https://news.ycombinator.com/item?id=38642461 (older tweet from Gergely Orosz) https://news.ycombinator.com/item?id=34627712 https://news.ycombinator.com/item?id=34627712 (largest Ask HN discussion)
- username135 2y ago
  Thanks for the links
- rightbyte 2y ago
  > tl;dr - previously companies could choose 1 or 5 years to amortize Just seeing if I got this right. A McDonalds' flipper's and a SWE's wage expense now works the same tax wise? I mean, most of the R in RnD is abuse for tax reasons when applied to SWEs. I get that it is bad for our wages, but is the change 'fair' for some definition of fair?
  - jncfhnb 2y ago
    > Just seeing if I got this right. A McDonalds' flipper's and a SWE's wage expense now works the same tax wise? Exactly the opposite A burger flipper is the cost of doing business. The value of the burger flipper is used immediately and so the expense is recognized in that year. Software used to be treated like that. Now they say that software development is more like building tools and developing assets. So you should recognize that expense’s value across a handful of years.
    - jen20 2y ago
      I haven't paid enough attention here, but how do system administrators fit into this?
      - verdverm 2y ago
        Is it a deductible repair, if you aren't sure probably amortize? Ask an accountant. Either way you need to be meticulous with record keeping for hours spent on tasks, or default to amortize It gets interesting when you think of responding to an outage. Are you "repairing" something that is broken, or "fixing" a bug and improving the software? It's hard to analogize what we do to the historical context in which the laws were written.
      - jncfhnb 2y ago
        If they’re not “developing” anything then it’s likely expenseable.
        verdverm 2y ago
        Are you adding new machines to scale up, are you deploying logging to improve visibility, are you updating packages (and thus improving the factory?) There is a bunch of grey zone where people are not sure what to do
    - rightbyte 2y ago
      Oh. Ye I need to read up on this.
- jncfhnb 2y ago
  > like building a factory Also like building or buying a set of tools People here love to complain about this rule but they generally don’t have any reason to justify themselves other than “it’s bad for me personally”. You’re building software. That software is generally intended for use in the future. It is not “consumed” this year. Youre not deleting your repos every year. You’re a tech a company. Your product is an asset that you built. There’s an argument that maintenance could be carved out but generally speaking most development is development. Triply so for startups. The startups crying that they shouldn’t have to pay taxes until they’re bigger can deal. The only reason you have a tax bill is because you have taxable revenue.
  - lazide 2y ago
    The vast majority of tools you can expense the year you buy them. It's only large capital expenditures (that usually can be resold for similar amounts as purchased at) that require amortization/depreciation. For example, an Excavator. Same if you build a house, building, etc. you can expense the labor that went into it that year, as well as materials consumed in building in. [https://onekeyresources.milwaukeetool.com/en/when-to-expense-vs-capitalize https://onekeyresources.milwaukeetool.com/en/when-to-expense...] There are situations the labor would be considered a capital expenditure, which you can then get ROI off of, but amortizing labor costs over multiple years is a pretty odd situation. If you couldn't, it would get reaaaaly ugly real fast, since the big challenge here is that cash gets spent this year, while it is only deductable against income taxes years later. So if I get $1mln in income now, and spend $1mln on say software R&D, i'd end up owing a bunch of taxes on the $1mln of income using cash I just don't have anymore. In the case of an excavator or whatever, there is a sellable asset which someone can turn around and sell to get cash if there is a problem. In the case of construction labor, there is usually some improved property or accounts receivable somewhere that can be used to pay the taxes too. In software R&D there rarely is. Outsourcing can do it though.
    - prepend 2y ago
      > The vast majority of tools you can expense the year you buy them. Not ones that you build.
nunez 2y ago
I'm surprised by the lack of discussion about this provision on here. This is the Startup Forum™; I thought it'd be a bigger deal. Unless it's not a big deal in the macro?
- lesuorac 2y ago
  It's Friday during both the summer and the Olympics for a topic that has been discussed a lot. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=Section%20174&sort=byPopularity&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
- sophyphreak 2y ago
  Section 174 is real bad
  - deleted 2y ago
    [deleted]
addicted 2y ago
Too many people are getting hung up on a philosophical discussion of whether this is the “correct” taxation approach or not. All of that is a nonsense and a distraction. The tax system is completely arbitrary and made up. It doesn’t matter whether something fits a certain definition or not. The only thing that matters are what the benefits and what the costs of doing a certain thing is. And it’s pretty obvious that there are almost no benefits and there are massive costs to this approach.
- znpy 2y ago
  > And it’s pretty obvious that there are almost no benefits and there are massive costs to this approach. could you disambiguate to which approach are you referring when you write "this approach" ?
xpl 2y ago
It's a shitshow and would definitely contribute to more U.S. layoffs and moving development abroad. Not sure who benefits from this.
- matthewdgreen 2y ago
  I understood it to be a political accounting gimmick to make the total cost of the tax cuts seem lower, since the standard way to measure this cost is to use an (arbitrary) 10-year time window. Under this approach, tax deductions that would previously be claimed in year 7 would now be spread out through years 7-11 and thus wouldn’t be counted. This is also why most people seemed fine with undoing the change, because it didn’t matter. But maybe I have this wrong.
linotype 2y ago
Does anyone know where Trump and Harris stand on this? I believe this is only an issue due to the TCJA.
deleted 2y ago
[deleted]

45 points by delichon 2y ago

For context, this is the Section 174 from the Trump Tax Cuts. Everyone expected it would be reversed before it went into effect, but the 118th congress has been largely unable to pass any legislation. tl;dr - previously companies could choose 1 or 5 years to amortize, now no choice & clarification that most software development counts as capital improvements (like building a factory). Many smaller companies are getting surprise tax bills this year, many of us have been putting it off with standard tax deferments (6 months) https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/ | https://news.ycombinator.com/item?id=38870429 https://news.ycombinator.com/item?id=38870429 (blog post by same Twitter user, Gergely Orosz) https://news.ycombinator.com/item?id=38642461 https://news.ycombinator.com/item?id=38642461 (older tweet from Gergely Orosz) https://news.ycombinator.com/item?id=34627712 https://news.ycombinator.com/item?id=34627712 (largest Ask HN discussion)

username135 2y ago
Thanks for the links
rightbyte 2y ago
> tl;dr - previously companies could choose 1 or 5 years to amortize Just seeing if I got this right. A McDonalds' flipper's and a SWE's wage expense now works the same tax wise? I mean, most of the R in RnD is abuse for tax reasons when applied to SWEs. I get that it is bad for our wages, but is the change 'fair' for some definition of fair?
- jncfhnb 2y ago
  > Just seeing if I got this right. A McDonalds' flipper's and a SWE's wage expense now works the same tax wise? Exactly the opposite A burger flipper is the cost of doing business. The value of the burger flipper is used immediately and so the expense is recognized in that year. Software used to be treated like that. Now they say that software development is more like building tools and developing assets. So you should recognize that expense’s value across a handful of years.
  - jen20 2y ago
    I haven't paid enough attention here, but how do system administrators fit into this?
    - verdverm 2y ago
      Is it a deductible repair, if you aren't sure probably amortize? Ask an accountant. Either way you need to be meticulous with record keeping for hours spent on tasks, or default to amortize It gets interesting when you think of responding to an outage. Are you "repairing" something that is broken, or "fixing" a bug and improving the software? It's hard to analogize what we do to the historical context in which the laws were written.
    - jncfhnb 2y ago
      If they’re not “developing” anything then it’s likely expenseable.
      - verdverm 2y ago
        Are you adding new machines to scale up, are you deploying logging to improve visibility, are you updating packages (and thus improving the factory?) There is a bunch of grey zone where people are not sure what to do
  - rightbyte 2y ago
    Oh. Ye I need to read up on this.
jncfhnb 2y ago
> like building a factory Also like building or buying a set of tools People here love to complain about this rule but they generally don’t have any reason to justify themselves other than “it’s bad for me personally”. You’re building software. That software is generally intended for use in the future. It is not “consumed” this year. Youre not deleting your repos every year. You’re a tech a company. Your product is an asset that you built. There’s an argument that maintenance could be carved out but generally speaking most development is development. Triply so for startups. The startups crying that they shouldn’t have to pay taxes until they’re bigger can deal. The only reason you have a tax bill is because you have taxable revenue.
- lazide 2y ago
  The vast majority of tools you can expense the year you buy them. It's only large capital expenditures (that usually can be resold for similar amounts as purchased at) that require amortization/depreciation. For example, an Excavator. Same if you build a house, building, etc. you can expense the labor that went into it that year, as well as materials consumed in building in. [https://onekeyresources.milwaukeetool.com/en/when-to-expense-vs-capitalize https://onekeyresources.milwaukeetool.com/en/when-to-expense...] There are situations the labor would be considered a capital expenditure, which you can then get ROI off of, but amortizing labor costs over multiple years is a pretty odd situation. If you couldn't, it would get reaaaaly ugly real fast, since the big challenge here is that cash gets spent this year, while it is only deductable against income taxes years later. So if I get $1mln in income now, and spend $1mln on say software R&D, i'd end up owing a bunch of taxes on the $1mln of income using cash I just don't have anymore. In the case of an excavator or whatever, there is a sellable asset which someone can turn around and sell to get cash if there is a problem. In the case of construction labor, there is usually some improved property or accounts receivable somewhere that can be used to pay the taxes too. In software R&D there rarely is. Outsourcing can do it though.
  - prepend 2y ago
    > The vast majority of tools you can expense the year you buy them. Not ones that you build.

nunez 2y ago

I'm surprised by the lack of discussion about this provision on here. This is the Startup Forum™; I thought it'd be a bigger deal. Unless it's not a big deal in the macro?

lesuorac 2y ago
It's Friday during both the summer and the Olympics for a topic that has been discussed a lot. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=Section%20174&sort=byPopularity&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
sophyphreak 2y ago
Section 174 is real bad
- deleted 2y ago
  [deleted]

addicted 2y ago

Too many people are getting hung up on a philosophical discussion of whether this is the “correct” taxation approach or not. All of that is a nonsense and a distraction. The tax system is completely arbitrary and made up. It doesn’t matter whether something fits a certain definition or not. The only thing that matters are what the benefits and what the costs of doing a certain thing is. And it’s pretty obvious that there are almost no benefits and there are massive costs to this approach.

znpy 2y ago
> And it’s pretty obvious that there are almost no benefits and there are massive costs to this approach. could you disambiguate to which approach are you referring when you write "this approach" ?

xpl 2y ago

It's a shitshow and would definitely contribute to more U.S. layoffs and moving development abroad. Not sure who benefits from this.

matthewdgreen 2y ago
I understood it to be a political accounting gimmick to make the total cost of the tax cuts seem lower, since the standard way to measure this cost is to use an (arbitrary) 10-year time window. Under this approach, tax deductions that would previously be claimed in year 7 would now be spread out through years 7-11 and thus wouldn’t be counted. This is also why most people seemed fine with undoing the change, because it didn’t matter. But maybe I have this wrong.

linotype 2y ago

Does anyone know where Trump and Harris stand on this? I believe this is only an issue due to the TCJA.

deleted 2y ago

[deleted]