6 ms·

Amortization is bad policy when it comes software. Software is inherently high risk. Every piece of software is unique and does not guarantee steady income over

Amortization is bad policy when it comes software. Software is inherently high risk. Every piece of software is unique and does not guarantee steady income over 5 years. Most startups won't survive 5 years to fully realize the deductions. This is the end of US software dominance.

timewizard 1y ago
Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Would this change have had any actual impact on their foundings?
- typeofhuman 1y ago
  HN has taken a sad turn over the last few years where we see genuine curiosity - such as your reply - met with downvotes instead of replies. I don't have an answer for you. But I support your intrigue.
- kopecs 1y ago
  Well, presumably the claim would be that a factor in their not having taxable income was the fact that they didn't have to amortize their development cost.
  - joshuanapoli 1y ago
    Yeah; start-ups will start paying tax much sooner since salaries are the main expense in software development, and only a fraction can be deducted per year. The tax change must make things marginally more difficult for young companies that have some revenue, aren't cash-flow positive, and have a short horizon.
    - tomrod 1y ago
      It's not marginal. It significantly impacts sub-$10MM companies.
- anonym29 1y ago
  It's worth noting that FB was quite possibly being secretly funded with taxpayer money by national intelligence interests at inception, which would have substantially reduced or eliminated commercial pressure early on. DARPA was working on Project LifeLog starting in 2003, was to be "an ontology-based (sub)system that captures, stores, and makes accessible the flow of one person's experience in and interactions with the world in order to support a broad spectrum of associates/assistants and other system capabilities". The objective of the LifeLog concept was "to be able to trace the 'threads' of an individual's life in terms of events, states, and relationships", and it has the ability to "take in all of a subject's experience, from phone numbers dialed and e-mail messages viewed to every breath taken, step made and place gone". The program, at least officially and publicly, was cancelled on February 4th, 2004, the exact same day that Facebook was founded. https://en.m.wikipedia.org/wiki/DARPA_LifeLog https://en.m.wikipedia.org/wiki/DARPA_LifeLog https://en.m.wikipedia.org/wiki/Facebook https://en.m.wikipedia.org/wiki/Facebook You can call it a coincidence if you want, I just tend to be very skeptical of "coincidences" where massive, powerful, unaccountable, immoral, unethical institutions like the US intelligence community get exactly what they want at the expense of our civil liberties.
  - trinsic2 1y ago
    I often wonder if national intelligence interests are behind or have taken control of major corporate players like Microsoft, Google and Apple. There was an article [0] back in 2015 that brought forth the proposition that google was created by the CIA. It would explain the current enshitification of these companies and the lengths they are going to take away choice. [0]: https://medium.com/insurge-intelligence/how-the-cia-made-google-e836451a959e https://medium.com/insurge-intelligence/how-the-cia-made-goo...
    - cjbgkagh 1y ago
      Ever wonder why Microsoft bought Skype?
    - hackandthink 1y ago
      Google Is Not What It Seems https://wikileaks.org/google-is-not-what-it-seems/ https://wikileaks.org/google-is-not-what-it-seems/
- tomrod 1y ago
  This impacts deductable expenses, not profits directly. The labor you pay for internally owned IP related to software must be amortorized. This screwed up an enormous number of business plans because software has more risk than many other endeavors. For small businesses, you basically can't do your own software. It applies to things like configuring your internal tools too. Good luck at audit time.
- madaxe_again 1y ago
  I don’t know how it works in the U.S., but we had HMRC in the U.K. write us a cheque every year, as if you have a greater R&D claim than your tax bill, you get a rebate.
- 9rx 1y ago
  > Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Most likely neither: It is its massive trade deficit, the one it strangely wants to get rid of now, that has allowed US consumers to consume more than they produce (i.e. you can take something with no real expectation of having to give anything back in return). Which, as it relates to tech, has enabled offering services for what is effectively free to dominate the market. Nobody else in the world can compete with that. > Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Wouldn't you say they had no taxable income because of it? If Facebook brought in $100,000, and paid $100,000 to developers, then there would be no taxable income under normal regimes. But if the developers were not tax deductible, then that $100,000 in revenue would be taxable, even though the bank account is empty. This isn't nearly so simple, but it has changed the calculus in a similar way. The business models of old no longer work because of it.
- shrubble 1y ago
  I’m not familiar enough with the very early days of Apple which started out as a hardware company to rebut you; but perhaps you mean the current Apple that has re-invented itself?
- hackernoops 1y ago
  It started with small and nimble innovators. Then it was shifted to Big Tech with the squeeze of patent trolling in the 2000's applied. It was capturing massive created value into the hands of few, connected, corrupt shitbags.
- CactusRocket 1y ago
  Hi, I'm just really curious about something. Why write AAPL, GOOG, and FB, and not Apple, Google/Alphabet, and Facebook/Meta?
  - tomrod 1y ago
    Stock tickers are common and more readable than FAANG
jopsen 1y ago
Amortization makes sense for things that have some inherent value. Like a microscope or computer. A bankrupt company can still sell their computers. Selling you code, lol -- code is more of a liability really :)
- Supermancho 1y ago
  > Selling you code, lol -- code is more of a liability really :) It's important to consider that lawmakers (who are not well informed or downright stupid) might think code has intrinsic value because of media married with a lack of real-world experience.
  - tomrod 1y ago
    Continuing your observation, this presumes they read and think deeply about the bills they vote on. They do not.
    - Supermancho 1y ago
      I remember the day I mentioned this in my high school^ honors sociology class and the eventual valedictorian exclaimed that I was stupid to think that. The system has been broken for longer than I have been alive, but the indoctrination has been working to make up for it. This was a Blue Ribbon School 1992-1993 yup. https://www.ed.gov/sites/ed/files/programs/nclbbrs/list-2003.pdf https://www.ed.gov/sites/ed/files/programs/nclbbrs/list-2003...
      - sigwinch 1y ago
        Reading all bills that reach the Senate is like reading two Bibles per year. The swing vote legislator? Maybe. But the partisan extremes?
  - bonoboTP 1y ago
    Lawmaker is a misleading word. The people who actually make the law and lobby for it probably know quite a bit. The representatives are law voters not makers. They don't design the laws literally. They vote because they are told to.
kccqzy 1y ago
Amortization is bad policy, period. If cost is actually incurred, it should be fully deductible immediately. No matter if it's a piece of equipment or software.
- dsauerbrun 1y ago
  i'd disagree heavily with that... let's say you have an expense of an insurance policy that covers you for the next 10 years. You're paying for 10 years of service, that should be amortized over 10 years.
  - kccqzy 1y ago
    Yeah but if the insurance policy requires me to pay upfront, I'm out the entire ten years' worth of insurance premium. Amortization forces it to be divorced from actual cash flow.
    - charlieyu1 1y ago
      Amortisation is for accounting/tax purposes. A large negative on the first year does not make sense. It should be divorced from actual cash flow, because cash flow doesn’t tell you the full picture of the company, while assets/profits do
      - kccqzy 1y ago
        I also didn't like the conventional definition of profit based on earnings. I'd rather look like free cash flow instead.
Hilift 1y ago
> end of US software dominance. What is that? Software sold by companies that have HQ in the US? Or software created by someone in the US? Because if it is only the first, good riddance.
- tempestn 1y ago
  Based on the Shopify example in the article, it's the latter.
luckylion 1y ago
Does a machine guarantee steady income during the period of its depreciation?

timewizard 1y ago

Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Would this change have had any actual impact on their foundings?

typeofhuman 1y ago
HN has taken a sad turn over the last few years where we see genuine curiosity - such as your reply - met with downvotes instead of replies. I don't have an answer for you. But I support your intrigue.
kopecs 1y ago
Well, presumably the claim would be that a factor in their not having taxable income was the fact that they didn't have to amortize their development cost.
- joshuanapoli 1y ago
  Yeah; start-ups will start paying tax much sooner since salaries are the main expense in software development, and only a fraction can be deducted per year. The tax change must make things marginally more difficult for young companies that have some revenue, aren't cash-flow positive, and have a short horizon.
  - tomrod 1y ago
    It's not marginal. It significantly impacts sub-$10MM companies.
anonym29 1y ago
It's worth noting that FB was quite possibly being secretly funded with taxpayer money by national intelligence interests at inception, which would have substantially reduced or eliminated commercial pressure early on. DARPA was working on Project LifeLog starting in 2003, was to be "an ontology-based (sub)system that captures, stores, and makes accessible the flow of one person's experience in and interactions with the world in order to support a broad spectrum of associates/assistants and other system capabilities". The objective of the LifeLog concept was "to be able to trace the 'threads' of an individual's life in terms of events, states, and relationships", and it has the ability to "take in all of a subject's experience, from phone numbers dialed and e-mail messages viewed to every breath taken, step made and place gone". The program, at least officially and publicly, was cancelled on February 4th, 2004, the exact same day that Facebook was founded. https://en.m.wikipedia.org/wiki/DARPA_LifeLog https://en.m.wikipedia.org/wiki/DARPA_LifeLog https://en.m.wikipedia.org/wiki/Facebook https://en.m.wikipedia.org/wiki/Facebook You can call it a coincidence if you want, I just tend to be very skeptical of "coincidences" where massive, powerful, unaccountable, immoral, unethical institutions like the US intelligence community get exactly what they want at the expense of our civil liberties.
- trinsic2 1y ago
  I often wonder if national intelligence interests are behind or have taken control of major corporate players like Microsoft, Google and Apple. There was an article [0] back in 2015 that brought forth the proposition that google was created by the CIA. It would explain the current enshitification of these companies and the lengths they are going to take away choice. [0]: https://medium.com/insurge-intelligence/how-the-cia-made-google-e836451a959e https://medium.com/insurge-intelligence/how-the-cia-made-goo...
  - cjbgkagh 1y ago
    Ever wonder why Microsoft bought Skype?
  - hackandthink 1y ago
    Google Is Not What It Seems https://wikileaks.org/google-is-not-what-it-seems/ https://wikileaks.org/google-is-not-what-it-seems/
tomrod 1y ago
This impacts deductable expenses, not profits directly. The labor you pay for internally owned IP related to software must be amortorized. This screwed up an enormous number of business plans because software has more risk than many other endeavors. For small businesses, you basically can't do your own software. It applies to things like configuring your internal tools too. Good luck at audit time.
madaxe_again 1y ago
I don’t know how it works in the U.S., but we had HMRC in the U.K. write us a cheque every year, as if you have a greater R&D claim than your tax bill, you get a rebate.
9rx 1y ago
> Is US software dominance because of our startups? Or because of the giant trillion dollar monopolies we have? Most likely neither: It is its massive trade deficit, the one it strangely wants to get rid of now, that has allowed US consumers to consume more than they produce (i.e. you can take something with no real expectation of having to give anything back in return). Which, as it relates to tech, has enabled offering services for what is effectively free to dominate the market. Nobody else in the world can compete with that. > Didn't AAPL, GOOG and FB all create products _before_ they had any taxable income? Wouldn't you say they had no taxable income because of it? If Facebook brought in $100,000, and paid $100,000 to developers, then there would be no taxable income under normal regimes. But if the developers were not tax deductible, then that $100,000 in revenue would be taxable, even though the bank account is empty. This isn't nearly so simple, but it has changed the calculus in a similar way. The business models of old no longer work because of it.
shrubble 1y ago
I’m not familiar enough with the very early days of Apple which started out as a hardware company to rebut you; but perhaps you mean the current Apple that has re-invented itself?
hackernoops 1y ago
It started with small and nimble innovators. Then it was shifted to Big Tech with the squeeze of patent trolling in the 2000's applied. It was capturing massive created value into the hands of few, connected, corrupt shitbags.
CactusRocket 1y ago
Hi, I'm just really curious about something. Why write AAPL, GOOG, and FB, and not Apple, Google/Alphabet, and Facebook/Meta?
- tomrod 1y ago
  Stock tickers are common and more readable than FAANG

jopsen 1y ago

Amortization makes sense for things that have some inherent value. Like a microscope or computer. A bankrupt company can still sell their computers. Selling you code, lol -- code is more of a liability really :)

Supermancho 1y ago
> Selling you code, lol -- code is more of a liability really :) It's important to consider that lawmakers (who are not well informed or downright stupid) might think code has intrinsic value because of media married with a lack of real-world experience.
- tomrod 1y ago
  Continuing your observation, this presumes they read and think deeply about the bills they vote on. They do not.
  - Supermancho 1y ago
    I remember the day I mentioned this in my high school^ honors sociology class and the eventual valedictorian exclaimed that I was stupid to think that. The system has been broken for longer than I have been alive, but the indoctrination has been working to make up for it. This was a Blue Ribbon School 1992-1993 yup. https://www.ed.gov/sites/ed/files/programs/nclbbrs/list-2003.pdf https://www.ed.gov/sites/ed/files/programs/nclbbrs/list-2003...
    - sigwinch 1y ago
      Reading all bills that reach the Senate is like reading two Bibles per year. The swing vote legislator? Maybe. But the partisan extremes?
- bonoboTP 1y ago
  Lawmaker is a misleading word. The people who actually make the law and lobby for it probably know quite a bit. The representatives are law voters not makers. They don't design the laws literally. They vote because they are told to.

kccqzy 1y ago

Amortization is bad policy, period. If cost is actually incurred, it should be fully deductible immediately. No matter if it's a piece of equipment or software.

dsauerbrun 1y ago
i'd disagree heavily with that... let's say you have an expense of an insurance policy that covers you for the next 10 years. You're paying for 10 years of service, that should be amortized over 10 years.
- kccqzy 1y ago
  Yeah but if the insurance policy requires me to pay upfront, I'm out the entire ten years' worth of insurance premium. Amortization forces it to be divorced from actual cash flow.
  - charlieyu1 1y ago
    Amortisation is for accounting/tax purposes. A large negative on the first year does not make sense. It should be divorced from actual cash flow, because cash flow doesn’t tell you the full picture of the company, while assets/profits do
    - kccqzy 1y ago
      I also didn't like the conventional definition of profit based on earnings. I'd rather look like free cash flow instead.

Hilift 1y ago

> end of US software dominance. What is that? Software sold by companies that have HQ in the US? Or software created by someone in the US? Because if it is only the first, good riddance.

tempestn 1y ago
Based on the Shopify example in the article, it's the latter.

luckylion 1y ago

Does a machine guarantee steady income during the period of its depreciation?