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

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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's fueling mass tech layoffs - https://news.ycombinator.com/item?id=44180533 - (927 comments) a few days ago. Other threads are listed at https://news.ycombinator.com/item?id=44203869.

There's currently a major effort to get this change reversed. One of the people working on it is YC's Luther Lowe (https://news.ycombinator.com/user?id=itsluther). 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'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: https://docs.google.com/forms/d/1DkRGeef2e_tU2xf3TyEyd2JLlmZ....

(If you're not a US person, please don't sign the letter, since lawmakers will only listen to feedback from taxpayers and we don't want to dilute the signal.)

I'm sure not everyone here agrees with us—HN is a big community, there'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!

A lot of people don't know what this Section 174 is about, so here's a brief explainer.

Normally, when you have expenses, you deduct them off your revenue to find your taxable profit. If you have $1 million in sales, and $900k in costs, you have $100k in profit, and the government taxes you on that profit.

Section 174 says you can't do this for software engineers. If you pay a software engineer, that's not "really" an "expense", regardless of the fact that you paid them.

What you'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 "well, they will reduce our profit, which reduces our tax obligation," but in this case software engineers are special and aren'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'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'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'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.

8 days agoby mediaman

I think people are missing the actual process used by Finance teams relating to this issue. I am a former CFO and spent a fair amount of time with this issue in my last role. The firm had a significant amount of software engineering expense related to its core operating system that was the backbone of the company.

The FASB accounting rules drive the capitalization of software expenses, not the tax rules. The FASB definition of GAAP (Generally Accepted Accounting Principals) for US firms is very specific and requires significant detailed tracking to comply.

As noted in one of the other posts, many companies want to capitalize as much software engineering expense as possible as that leads to higher operating income and net income. Bonuses, option grants and stock prices tend to be tied to those metrics. The argument is that building a piece of software should be treated like purchasing it off the shelf. If a firm pays $1M to implement SAP, it does not have to expense it all in one year, but rather depreciates it over its “expected life.” Since “expected life” is difficult to define for every piece of software, there are default lifetimes (similar to saying motor vehicles default to a 5 year depreciation schedule).

Tax then generally follows the GAAP accounting except when the government intervenes to try and increase capital spending. Periodically the government will allow accelerated depreciation which increases operating expenses for tax purposes only which reduces current period cash taxes. Note total taxes do not change, only when they get paid.

The Section 174 under discussion here is simply the same idea then applied to software development in an effort to juice hiring.

For the people discussing whether the IRS is effectively tracking and enforcing this - the IRS really does not matter. A companies auditors enforce it. Without all of the necessary paperwork/digital audit trail, a firm in not permitted by the auditors to capitalize the expense. The same auditors have to sign off on the tax treatment as well. Finally, with respect to maintenance, the idea is meant to be similar to the treatment for machinery ( i.e. traditional capital expenditures). When a firm puts gas in the company truck or replaces tires or fixes a windshield, they do not capitalize those expenses. The idea is the expense do not fundamentally improve the item or meaningful extend the life beyond the initial expectations. Following that line of thought, maintenance releases are not thought to extend the life of the software while significant improvements to the software do and therefore can be capitalized.

DISCLAIMER - while I was a CFO, I was not a Certified Accountant. What I have described above is what the accountants and my audit firms described to me as I worked through this issue in preparing financial statements.

8 days agoby andrewlgood

The Small Software Business Alliance has been actively working on this issue since day one.

https://ssballiance.org/about/engage/

And Michelle Hansen was an early organizer https://x.com/mjwhansen

If you work at all in energy, the Clean Energy Business Network is also proactive in fighting for change. A couple of years ago they put me touch with Ron Wyden's staff. The Democrats are almost universally opposed to what was added to Section 174.

https://www.cebn.org/media_resources/house-republicans-advan...

Fight this thing - it is terrible. Not just for software but any innovative business in the USA.

8 days agoby jweir

Thank you for helping to tackle this. The silence on this issue for the past few years from smaller software companies and their affiliates was surprising to me. The recent "time bomb" article was one of the few media pieces that actually took the time to describe it as anything other than a "tax cut for huge tech companies", which was refreshing.

My current favorite theory as to why there hasn't been more of an outcry is that many companies ignored the rule change (either out of ignorance or as an alternative to going out of business), and are forced to remain silent.

8 days agoby TheTaytay

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.

8 days agoby vessenes

As a business owner, I've been adversely impacted by this. I still can'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'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's just insane.

8 days agoby jgalt212

I am writing my member of Congress right now.

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I'm writing to express my urgent concern regarding the negative impact of the 2022 Section 174 tax code changes on small businesses like mine. As owner of Rietta, Inc., a small cybersecurity firm, I still do much of the technical work. My wife and I have three young children under 6. My family and I have been directly negatively impacted by these changes from the 2017 act.

Previously, the tax code helped us afford open-source and experimental work that benefited customers. For example, modernizing applications to run on Docker improved testing and deployment. Our State government clients now benefit, but this was once experimental. Now we're largely back to just work-for-hire consulting, treated as cost of goods sold. I don't have the cash to pay for experimental software development only to then amortize it over five years. If I have $100k revenue and spend $100k, the current code allows only a $20k deduction. I owe taxes on the other $80k despite no cash or documented asset value. Experimental software doesn't work like that in this field.

I started this business 26 years ago. We provide important long-term custom programming and update work for private sector and State government clients ("STATE A" and "STATE B" judicial branches). Often, we work with code we didn't originally write.

As a professional computer scientist and business owner, I rely on my CPA for tax compliance. If I've erred in my example, that's on me. But I can tell you this amortization requirement particularly cripples small businesses like Rietta, Inc., where cash flow is critical, severely limiting the quality of services I can afford to provide. I support undoing this tax change.

7 days agoby rietta

For folks that don't know the background on this, here's a layperson summary:

- A business is usually taxed on its profits: you deduct your revenue from the cost of producing that revenue, and the delta is what you are taxed on.

- In software businesses, this usually means if you spend $1M in software development to develop a web app, and it makes $1.1M in that year, you'd get taxed on the $100K profits.

- However, a few years ago, the IRS stopped allowing the $1M to be deducted in the year it was incurred. Instead, the $1M was to be amortized over 5 years, so now the business can only count $200K as the deductible expense for that year. So now it's going to be taxed on "profits" of $900K. Assuming the tax rate is 20%, that means the business owes $180K in taxes, even though it has a total of $100K in the bank after the actual expenses were paid. So it would have to either borrow to pay taxes or raise venture capital, meaning that VC-funded companies would be advantaged over bootstrapped ones!

- The letter's goal is to bring things back to how they were (and how they are for all other businesses): let businesses deduct their actual expenses from their actual revenue, and tax that actual profit.

I am neither a lawyer nor an accountant, this is just my understanding of this issue.

Edit: Switched the tax rate to 20%. The logic is still the same.

8 days agoby jsherwani

This US tax code change directly impacted my small business in a very real way that was directly felt by my household. In the past, it was a big boon for us and helped me afford to pay for some open source work and experimental things that helped our customers in the long run. Now we are back to mostly doing work-for-hire consulting. Even the experimental work I am doing, I am just paying for it and writing it off as typical business expenses. I cannot afford to take the credit because that means no deduction for this year. I don't have the cash in this small business context.

8 days agoby rietta

What inspired working to reverse this now?

I'm all for it, just curious as the law has existed for 8 years and been in effect for 3. Seemingly little interest from anyone in the tech world to put lobbying behind reversing it until this point.

What changed?

8 days agoby garrickvanburen

Signed and called my representative and senators.

I ask simply "If I have $1m of revenue and $1m of expenses that is entirely software dev salaries, what do you think my profit is for that year? How much should I be taxed on that?"

https://www.house.gov/representatives/find-your-representati...

https://www.senate.gov/senators/senators-contact.htm

8 days agoby n_u

@dang (and others). If you want a groundswell of support have you consider have you considered reaching out to game devs and indie game devs? It seems like they'd all be negatively affected. They'd spread the word to players.

8 days agoby socalgal2

I seem to remember people being broadly in favor of this change at the time it was first proposed because it would elevade software development and create more long-term stability, but in a world where the primary focus is on quarterly funding rounded and acquisitions it obviously skews the numbers and thus the potential founded/early investor upside.

There are two possible motivations for the impending change. One is the argument that deducting 100% of developer labor isn't ideal because developers create IP whose value can compound as an asset, rather than the labor being 'consumed' in production as with manufacturing (where any long-term benefit after the initial sale goes to the consumer). The other is that it's a legislative stick designed to herd a powerful investor/donor lobby into supporting budget legislation in exchange for turning the favorable tax treatment faucet back on.

8 days agoby anigbrowl

Signing a letter is fine, but will not have the same impact as phone calls made to your representatives.

https://5calls.org/why-calling-works/

You don't need to use that site - the point is that if you want to have the loudest voice, make some calls.

8 days agoby codingdave

Signed. As a US-based developer, I fully support restoring the deductibility of software development expenses. This policy change quietly gutted countless startups and engineering teams—it’s long past time we fix it.

Appreciate YC and folks like @itsluther pushing this forward. This isn’t just a tax issue—it’s about keeping innovation and talent thriving in the US. Let’s get it done.

8 days agoby atxtechbro

Luther et al, would you be willing to share some high level statistics about the submissions, such as how many signatures it gets?

8 days agoby freedomben

Possibly dumb question... For a medium/large company, is this really a big deal? Their payroll is relatively stable year-over-year, so after a few years, it all evens out (very roughly). Or am I missing something?

IE, is this really an anti-competition law, designed to protect entrenched tech industry players and prevent up-starts from, well, starting?

8 days agoby alistairSH

Forgive me if this has already been answered in one of the other threads (I haven't been following them), but:

How does this work in other countries?

8 days agoby cesarb

Japan has required amortization of capitalized software over five years for qualifying internal-use software since at least 2000. Correct me if I’m wrong, but I believe most other countries have similar rules.

Until 2022, U.S. companies had a real competitive advantage.

Software developer salaries in Japan are depressed—other roles too, but especially engineers. Without digging too deep, perhaps the previously unfavorable (now roughly equal) tax treatment of was perhaps a contributing factor.

8 days agoby dwg

As I understood it, it makes a difference between R&D on one hand, and "maintenance" on the other hand. This has resulted in that my US corporate overlords are shifting maintenance work to the US (better for taxes) and doing greenfield development where I am in the EU.

This must be excellent for morale in the US office, but I'm not complaining.

8 days agoby alkonaut

Is HN/YC going to submit the google form submissions to the relevant committee members on the signers' behalf?

7 days agoby ryanisnan

I don't favor any tax breaks for big tech until they actually start paying meaningful taxes. There have been far too many giveaways. The country is running a massive deficit, and the current "solution" is to balloon the deficit and throw the poor under a bus.

8 days agoby adamc

The SSBA (Small Software Business Alliance) was set up by Michele Hansen -- co-founder of Geocodio, http://geocod.io (and the SSBA is now run by another person) for this reason -- to raise awareness in Washington DC of the issue with the Section 174 Capitalization changes and the efforts to repeal it.

https://ssballiance.org/

She has also spoken about it on podcasts: https://www.youtube.com/watch?app=desktop&v=oF-xsDd1A4o

8 days agoby gortok

This will stay because it’s a barrier to smaller companies and nothing significant for larger companies that make political donations

8 days agoby matt3210

I wonder if something like this could also help the hardware industry, thus encouraging more manufacturing in the US.

8 days agoby analog31

What's particularly wild about the choice to tax software development in this way is that it assumes that code is always asset. For companies that are pre product market fit, it's often a liability!

8 days agoby arturocamembert

By forcing software wages to be amortized over 5 years (15 for foreign devs), Section 174 has sapped cash flow, prompting layoffs and project cancellations totaling $3–4 M for some firms. Reinstating immediate expensing could unlock roughly $240 B in stuck deductions and supercharge R&D credits, materially bolstering hiring and keeping IP onshore. Has anyone modeled the macroeconomic gains of full expensing versus the budgetary trade-offs in the current $4.5 T tax proposal?

8 days agoby rajeshpatel15

Salaries aren't a one-time expense, so is the amortization rolling? Like, year 1, you pay me $200k and deduct $40k. In year 2, you pay me another $200k, do you get to deduct $40k for year 1's salary and $40k for year 2's salary?

I guess another way to ask is, does this mean that if you keep someone for 5 years and don't change my wages, is their yearly salary effectively fully deductible? If so, does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?

8 days agoby flambojones

Doesnt this new law inhibit rapid turnover tho? Since it takes 5 years to get the full deduction of an employee’s salary, there is an incentive to keep the employee around. OTOH, the souless bean counters who want quarterly (if not shorter) time horizons, will simply decrease starting salaries and use other methods to be net zero. If they do shaft the software engineers, then the converse is true-no employee should stay at a job more than a year because only the corp will benefit as the deduction grows

8 days agoby bawana

I am not sure I understand how amortizing these expenses benefits the government at all, as it is. I won't speak to the methods the government is using to value software, because others have made those points better than I could.

First, I think the impact on large businesses has diminished greatly since 2022 anyway, so restoring the tax deduction would essentially give those businesses a 1-year "bump" in their deductions (since they'd be able to expense the previous 4 years of left-over deductions all at once, plus the current year in full). As far as I can tell, the expense isn't tied to individual workers, just the combined salary expense. So hiring/firing shouldn't be largely impacted. And, any benefit the government would have gotten from large corporations has (again, since 2022) now expired.

For small businesses and start-ups, there is of course a much greater impact. And, ironically, I think the government is actually collecting less from small businesses in the long term, because the businesses that needed the full deduction to survive can't be collected from, having gone out of business.

So the government isn't collecting any more taxes today than it used to. It is probably collecting less, depending on how much revenue has shifted from small (and now failing) businesses to large ones. And we're basically encouraging all of those more entrepreneurial technologists among us to go work for larger corporations instead of striking out on their own.

I guess my question then, is, who does this tax code even benefit?

Edit: looks like it was just a victim of the TCJA, meant to make TCJA look less expensive. I don't think it had its intended effect.

7 days agoby twodave

> but this issue has as close to a community consensus as HN gets

Curious how this is assessed of you could share?

8 days agoby vasco

If the software written in a one year period of time for $100k is an asset then I, as a small business owner, can go to the local credit union and take out a loan on favorable terms with the that asset as collateral. No, of course not! They would laugh me out of the branch or the loan would be credit card interest rates. Software is demonstrably NOT AN ASSET like a major piece of equipment.

7 days agoby rietta

the real question is why is r&d for startups in general amortized in the first place? doesn't this discourage startups pursuing risky hard science ventures?

8 days agoby throwawaymaths

Signed.

That said, here'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's the key:

  Development costs incurred to remove uncertainty are amortized.  
  All other costs are deductible during the tax year where they are incurred.

How does this work?

You are going to design a new robot arm.

In January, you spend $100K to "remove uncertainty". In rough strokes, this means discovering all the things you don'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.

https://www.law.cornell.edu/cfr/text/26/1.174-2

8 days agoby robomartin

Doesn't this incentivize outsourcing or fractional work to some degree, because that would still be counted as regular expenses?

8 days agoby rubenvanwyk

I would not use section 174 as a reason not to startup but rather as a way to ensure you are running a lean ship. It’s very possible the rule change could be retroactive. Thats just my poker take on this bluff. It may not be retrospective or it may not happen at all. But indecision will kill some startups, the ones who don’t will be a year or three ahead.

8 days agoby grepfru_it

I think the most impactful thing you can say about Section 174 is that if it continues, I will be starting my startups outside the US. An employee should be taxed like an employee, not a panel truck. There is no guarantee the software developer will produce anything of great value, so this is a tax on unrealized gains.

7 days agoby panny

I've heard that many of the big tech layoffs where actually just moved / converting them to contracting groups, so they lose the direct head count but kept the developer via the intermediary. Have others heard this too and could this have been a way to label contractors differently so they don't fall under this tax code?

8 days agoby murdockq

The tech community, correctly or incorrectly, is broadly seen as "anti-tax cuts", so - regardless of the actual merits of this particular tax cut - I'm not sure how well-received this campaign will be.

I'd brace for some rather heavy sarcasm on social media for anyone brave enough to tread those waters.

8 days agoby MyPasswordSucks

Wish someone in EU do similar signing / votes for lobbying EU for taxing US Tech companies or applying 15 years amortization for all US products as a revenge - sorry US but 15 years amortization for everyone outside US is just worldwide tariff for any other software producers, freelancers, etc.

8 days agoby pzo

As an international founder, I'd like the section 174 to be fully restored as it was before – not just for domestic R&D but offshore one as well, so we're not hit with 15 years deprecitation (it is as good as "infinity")

I also own section174.com and sec174.com

Would these help with visibility?

4 days agoby yrashk

>We therefore urge Congress to include a retroactive carve-out from Section 174’s amortization requirements

What if I'm in favor of restoring the previous deduction behavior, but not of doing it retroactively?

8 days agoby Thorrez

My understanding is that the current "Big Beautiful Bill" reverses this

8 days agoby droptablemain

Note that this letter's requests DO NOT include voting against the reconciliation bill, just modifying it to add a carve-out to fix Section 174. While I agree that Section 174 desperately needs reform and is harmful to the tech industry, the bill as a whole must be opposed, not tweaked.

There are many, many things wrong with the "Big Beautiful Bill", too many to fix through piecemeal efforts like this. It must be resolutely opposed, not endorsed with minor changes.

8 days agoby matthberg

This is where it's really important to use a bug tracker that can distinguish between bugs/maintenance and feature development. The former can be deducted but the latter has to be amortized.

8 days agoby siliconc0w

https://pro.bloombergtax.com/insights/federal-tax/rd-tax-cre... good explanation is here

5 days agoby elCreator

Does Section 175 apply to other professions? For example, if I hire a full-time handyman for my office, does their salary count as a deductible cost?

Sorry if this sounds naive—I'm genuinely struggling to understand why the labor of software engineers would be treated differently from other kinds of work. It seems logical that either all labor costs should count as costs, or none should. If different types of jobs are treated differently, what's the reasoning behind that?

8 days agoby hintymad

I built a lightweight grassroots advocacy tool for this.

It figures out who your reps are and sends them a pre-filled note based on what matters to you (you can edit/customize it before it sends). Includes a call script too if you're up for calling...

https://secure.legisletter.org/campaign/cmbpf5js80000l70d5fn...

8 days agoby processing

Happy to support this, desperately needs to be changed.

8 days agoby silverlight

Does not restoring the tax deduction for software dev in the US help solo founders who don't draw salary to compete with large businesses?

8 days agoby nextn

Does anyone know how AI coding fits in with S174? If a person’s “coding” part of the job is primarily running prompts and checking code outputs (quality control and minor reprompting) with the remainder of the time used for other activities, does this count as software engineering?

It seems like an inevitable outcome of this is elaborate system-gaming to mitigate how much employees fall under S174…

8 days agoby cmogni1

I support this effort. Government should tax economic gains, not revenue. A business with $1 million in revenue and $950,000 in expenses is far less profitable than a business with $1 million in revenue and $200,000 in expenses. If both were taxed on their $1 million revenue, the first business would be in a dire situation.

8 days agoby Dowwie

Nowadays, with more and more economic output coming from knowledge work (IP), this depreciation and amortization approach feels hopelessly out of date. I don't know what a good replacement is, but I know software and IP more generally shouldn't be treated at all like a material good.

7 days agoby aklein

How does it work for outsourcing? Do you get full tax deduction if f you just pay offshore company to do dev?

8 days agoby polskibus

I would support the OBBBA changes to Section 174 for life sciences companies but not for software development.

8 days agoby 1vuio0pswjnm7

i'm torn. on one hand, i simply do not care if business do not want to pay more in taxes. in fact, i gladly accept the premise that business should pay more in taxes.

in practice, the slippery slope argument is that this will entrench big-money players, which i don't support, because they'll be the only ones who can afford this. i also fear that it'll lead to an irresponsible adoption of "virtual coders" because it's cheaper than paying juniors.

kind of a rock and a hard place for me.

8 days agoby GuinansEyebrows

I've been working on a project called x174 to deal with this disaster. Think of it as a bugfix. Will reach out

Btw - this sort of project is what my startup does - we spin out autonomous projects - that could be companies - that provide social good and solve otherwise unsolvable problems.

8 days agoby _lex

Does anyone have any insights into what type of engineering services the IRS defines as SRE - meaning, does forward / customer facing integration // engineering meet the SRE classification threshold?

6 days agoby danielmorozoff

It’s just a salary expense, where should software come into it?

1m salary costs 100k other costs 1.1m revenue 0 profit 0 tax

Anything else doesn’t make sense to me

8 days agoby callamdelaney

In general, anything that encourages companies to reinvest money into infrastructure, research, etc is a great idea. The trick is to make sure it actually does encourage research, infra, etc etc and doesn't just give a loophole for companies to take more profits and pay less tax.

8 days agoby jmward01

Why payment to Software Engineers is not an expense for the current year? Is it because of the size of the expense? or some other rule that I am missing. Those employees are also paying taxes to those salaries as well. Isn't it? What is the catch? I'm confused.

8 days agoby the_arun

What other employee roles pretty directly produce assets that often have value for the company across multiple tax years?

What kinds of workers who produce IP?

What kinds of workers who build equipment retained by the company (not quickly sold)?

And how are taxes for those employee expenses currently handled?

8 days agoby neilv

honest question - why dont companies just hire software engineers under the guise of some other title like "researcher"? would that allow them to get around the 5 year depreciation? how is it even enforced?

7 days agoby spruce_tips

Wait, I have questions, you are selling software or services with the software you make, right?

The dev costs are costs related to the thing you are selling, so they are costs of goods no? So they should be deductable regardless, no?

8 days agoby throwawayffffas

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.

8 days agoby andrewmcwatters

This whole discussion has me thinking its unfair to force any capitalisation to be amortised over x years, whether its salaries or machinery. You spent the money, you're out of pocket, why not claim the expense.

8 days agoby jay_kyburz

So this is a huge problem, and one worth tackling, but I worry very much about the timing of this post in the context of the bill being brought before the Senate now.

We should not implement horrific legislation just because we agree with a single provision. Calling your representatives is the right path, but you MUST be explicit that you do not support the current bill being brought forth that addresses this.

Here are a few pieces for context, if you're not informed about what's in this bill: https://thehill.com/opinion/finance/5339440-the-big-beautifu... https://archive.is/No4o9

Please, I beseech my fellow Americans, do not vocalize any support for this bill. We'll correct the ills of the 2017 administration in time, but this is not the way to do that.

8 days agoby Atreiden

I would appreciate some transparency. I have seen fictional/theoretical scenarios around this simplified to the following:

"You have $1M in engineering expenses annually. So now instead of deducting $1M per year. Now you can only deduct $200K in that tax year. And then amortize it over 5 years"

But we all know this isn’t a vacuum. The US tax code is massive, corporate tax reduced over decades.

You are telling me this single paragraph in the US tax code is directly causing massive layoffs? Or is this single paragraph in the US tax code used as a scapegoat to initiate layoffs and then used to pump P&L and thus still approve C-level executive bonuses?

These big companies have access to massive accounting firms and they can’t work their fucking magic on a single paragraph of text? I call bullshit on big tech.

8 days agoby xyst

The problem is that the most profitable and high paying companies are mostly software companies. If you want to raise tax revenue there aren't many other industries that can pay.

8 days agoby rr808

Is this for taxpayers or citizens? Not all taxpayers are citizens.

8 days agoby Izikiel43

I've written on here a few times about this. This is part of the reason the job market is so difficult right now for software engineers. Let's get this changed!

8 days agoby phyzix5761

I was under the impression that this was included in the current one big bill and will continue to be included. It’s not something we would expect to be removed.

8 days agoby daft_pink

Sounds like you could use some help building a protest. Try outcryai.com and I think you’ll find it useful for bringing this campaign to the next level.

8 days agoby micahwhite

Can someone steelman the positives for me? I don't see how it's anything but pure regulatory capture favoring established tech firms. A small company ramping up revenue simply can't handle this amortization while a large, established company can.

That being said, I do think there's a little sloppiness in what is categorized as "R&D" in the software development. Is code maintenance R&D? Bug fixes? Performance improvements? Is it a "capital asset" no longer under R&D once it hits production? This aspect has always seemed too gray given how much money is at stake in taxes.

But again, this complexity is an advantage for more established firms with legal departments and the infrastructure in place to document everything in order to handle audits. Which, in my view, is a form of regulatory capture; this presentation of symptoms of regulatory capture is pretty common.

One potential argument I can see is that maybe this balances out since presumably the more established firms would have less "R&D" as a fraction of expenses to deduct in the first place?

Edited to fix some typos and clarity.

8 days agoby chermi

I'm curious: what was the original argument for this special case of counting anyone involved in software dev as an asset instead of an employee?

8 days agoby skizm

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/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.

8 days agoby stego-tech

ive got a different thought in response to this:

is all this ammortization stuff bumpkiss? not just for sorftware developmeent, but everything else that's required to be ammortized?

software has been the growth area of actually making stuff for the past 20 years in the US. is it ammortization rules that have held back other investment?

8 days agoby 8note

An obvious alternative would be tying it to any resulting copyrights and patents, without either there is no asset.

8 days agoby nullc

Anyone know what the situation in Europe is?

8 days agoby hcfman

I would like to see this as part of another bill not the big beautiful (sic) bill that is in the senate now.

8 days agoby gigatexal

How could this affect to companies that have employed software engineers overseas?

7 days agoby PrivacyAI

Software is one of the few things that the US still dominates at. Looks like this will change soon.

8 days agoby ninetyninenine

I support this and am willing to help.

8 days agoby justinzollars

Isn't this tied to the budget bill ("One Big Ugly Bill") that effectively removes the last way federal judge's can hold anyone in the Trump admin accountable?

8 days agoby sdg3Q5g

Signed, thank you so much for organizing this. I hope this change is made reality. We must retvrn.

8 days agoby sergiotapia

Could LLM companies be lobbying to remove this tax incentive in hopes to help kill the job?

8 days agoby righthand

I always wonder when reading about things like this, and had a fun dinner discussion about it a while ago. What would happen with the following instead?

1) Remove all tax deductions entirely.

2) Have no corporate income tax at all.

3) Tax cash and cash equivalents at a very high rate (20% ???) per year, tax other assets at a lower rate (5%).

Basically just have taxes that are high enough to encourage productive use of all assets (above inflation), and to really really encourage companies not to horde capital. Seems much simpler.

I might also be convinced that taxes shouldn't even kick in until a corporation is above a certain size (5 milion USD?).

8 days agoby stephen_cagle

The law can be a ass, as in this case. So I fully support this petition.

8 days agoby omnee

lool write a declaration of independence and I'll sign it. We don't have any representation in this government. The only solution is revolution.

7 days agoby jart

is not this would hit US innovation at tech sector????

after AI and this, senior engineer would be valued so much that they would get incentives for long tenure (more than ever)

8 days agoby tonyhart7

Are there any sources for the argument why this should apply to software and not to, say, farm equipment? The cash flow and taxation story seems to be the same.

8 days agoby bdcravens

Can we bundle this with closing the carry tax loophole?

8 days agoby mupuff1234

I'm afraid most of the damage is already done...

8 days agoby physhster

What should we do with the "company" field?

8 days agoby timr

Disappointed there’s only two mentions of GAAP on this thread.

This change aligns (to a closer extent than before) Tax accounting with GAAP accounting. Let’s say the tax code returns to pre-2017. Would the same people seeking this change seek a change to GAAP? No, because it would hurt their profitability.

8 days agoby zeckalpha

It’s in the big beautiful bill what’s the issue?

8 days agoby yieldcrv

This one hit my company pretty hard.

8 days agoby doxeddaily

I wonder what has happened to the US legislators. Don't they do their homework or too desperate to patch the huge budget deficit?

8 days agoby wg0

corporate tax is already so low that we shouldn't have this kind of deduction at all: make corps pay income tax like citizens. there can still be deductions, but the idea of writing off all the costs of doing business is like people being able to write off rent, food, clothing, transport, etc.

7 days agoby markhahn

Great

4 days agoby AUSTINE001

Non US persons also pay taxes, so surely they should be able to sign this letter?

8 days agoby zekrioca

Interesting that YC is jumping on this tax code thing, but the shitty tax situation for employees trying to hold onto the equity they'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.

8 days agoby lostdog

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

8 days agoby Mistletoe

Somehow I'm not a fan of HN using this community for lobbyism purposes.

8 days agoby varsketiz

Why though?

There's no shortage of software engineers.

Something like this will fuel a over hiring boom just before AI gets good enough.

8 days agoby fooker

Hot take. Maybe SWEs making lawyer money was always unsustainable.

8 days agoby TechDebtDevin

luckily for me my startup makes no revenue so we're unaffected by this :sunglasses:

8 days agoby bad_haircut72

Why is it that tracking expenses as R&D is bad? Where I work, we started tracking our R&D hours compared to other work recently, and an increase in R&D hours has resulted in less tax burden.

Edit: not sure why the downvote, it's an honest question. I'm not arguing anything.

8 days agoby jollyllama

Isn't there another law that taxes research and development?

7 days agoby b8

Why should I care about these companies when they seem dead set on outsourcing my work regardless of tax codes?

8 days agoby horns4lyfe

oh no! corporate profits!

7 days agoby smeeger

Trump Giveth and Trump Taketh away. Find a billionaire to sponsor your request, throw in a golden toilet for Qatar plan, it's more effective than any other form of lobbying, or, lol, political process.

8 days agoby gmerc

This is less on that specific topic and more general: While I enjoy the hacker news forums a great deal, I'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's an everyone for themselves aspect here, but that makes these kinds of call to actions a bit hollow to me.

8 days agoby duxup

another illustration why income taxes in general are bad.

8 days agoby strawhatguy

On "Section 174" and more on taxes from Hill, Barth & King LLC

https://hbkcpa.com/insights/proposed-tax-bill-addresses-trum...

is in part:

     Jobs Act. The bill also addresses the
     “big three” business tax provisions:
     deducting research and development
     expenses, 100% bonus depreciation,
     and loosening the rules for the
     deductibility of business interest.

with

     deducting research and development
     expenses

For more there is (with my reformating of the text):

HBK

Home / Insights / Proposed Tax Bill Addresses Trump Campaign Promises and Expiring TCJA Provisions

Proposed Tax Bill Addresses Trump Campaign Promises and Expiring TCJA Provisions

Date May 15, 2025

Earlier this week, the House Ways and Means Committee released details of a multi-trillion-dollar tax-cut bill. The legislation closely follows President Donald Trump’s campaign promises of no tax on tips and overtime, tax breaks for seniors and car buyers, and extension of much of the expiring 2017 Tax Cuts and Jobs Act. The bill also addresses the “big three” business tax provisions: deducting research and development expenses, 100% bonus depreciation, and loosening the rules for the deductibility of business interest.

Key Provisions

(1) Permanent extension of individual income tax rates (no new millionaire’s tax rate)

(2) Permanent extension of the higher standard deduction with temporary increases for 2025 through 2028

(3) Additional $4,000 standard deduction for seniors (subject to income limitations)

(4) Estate and gift exemption increased to $15MM

(5) State and local tax deduction is increased from $10,000 to $30,000 (subject to income limitations)

(6) Child tax credit of $2,000 made permanent with an increase to $2,500 for 2025 through 2028

(7) Return of the $300/$600 above-the-line deduction for charitable contributions

(8) 100% bonus depreciation for assets placed in service after 1/19/25 and before 1/1/2030

(9) Full expensing of Section 174 domestic research and experimental expenses for 2025 through 2029

(10) Increase in the Section 179 deduction to $2.5MM with the phaseout beginning at $4MM

(11) Qualified business income deduction made permanent and increased to 23%

(12) Addition of a special deduction for “Qualified Production Property” which allows 100% depreciation for manufacturing buildings

(13) Eliminates many business, home and vehicle energy tax credits

(14) Creating a new round of Qualified Opportunity Zones with investor tax benefits

There is still substantial debate to come as this bill moves through Congress. We will continue to monitor developments and keep you updated on any changes that may affect your tax situation. Please contact HBK with any questions or to discuss how these potential tax changes might impact your specific financial circumstances.

So items (8) and (9) seem to have to do with deducting "depreciation for assets" and "Section 174".

8 days agoby graycat

Is lobbying for our interests how we become the bad guys?

I dont want software development to become the oil and gas industry.

More specifically, if software devs aren't creating capital assets, then what exactly is being bought during an acquisition? Don't we tell ourselves our work is building an asset that can be reused and sold. The operational aspect of our job still seems to be treated as opex.

Our entire industry is built on the belief our software is an asset. This feels like big tech wiggling for a tax break but disguised as some grass roots effort to help small tech.

I am strongly against this as the ethics feel very wrong. Our industry doesn't need tax welfare.

8 days agoby hermannj314

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

8 days agoby jayunit

The military is being unleashed against civilians and this is the political issue you’re concerned about on today of all days?

Dang, you’re one of the bad ones.

8 days agoby gg-plz

I'm going to be that guy and just say that one of the many many harmful side effects of income taxes is the kind of social engineering power it gives politicians, who are neither qualified nor properly motivated to make good decisions with such tools. Income taxes are an unethical pollution to our society and government.

8 days agoby kogus

Maybe we should focus on fixing H1B first?

8 days agoby Salgat

We need zero interest rates back to actually get this to work, because that means essentially zero risk to any project. even s174 can't do that.

8 days agoby downrightmike

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?

8 days agoby wodenokoto

We should not have carve out for software R&D or anything else.

Business taxes as a whole are stupid and a convoluted mess, just let businesses make as much money as possible and roll with it.

It would be much more efficient to tax consumption at a flat rate, and give a variable rebate for elderly/children/whatever.

8 days agoby enceladus06

I want to propose an alternative for those here reading that are tired of the US and its administration, and are looking for an opportunity to move to Europe this year.

I am looking for US-based founders who want to make the leap and move to EU. We're doing an incubator like no other, in Brussels at the heart of the EU capital. 15 startups, 6 months hybrid program, only US-based founders. Here in Belgium, software dev is taxed for correctly, and there's a 0% capital gains tax which is super attractive for startup founders.

Everyone in the Fall 2025 cohort gets a 25% share of our take on any exits. That means by joining the incubator, you invest in 14 other startups by founders who are as crazy as you.

This was created right here on HN, in a "Who is Hiring" job post, with feedback from the ensuing community. I'm looking for a few more founders to apply before July 1st.

Deadline to apply July 1st. https://sevenseed.eu

And if you aren't interested in making a startup but just want to move, email me, I will help you get a job in EU.

8 days agoby scrollaway