&gt; 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 &quot;this approach&quot; ?

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.

It&#x27;s Friday during both the summer and the Olympics for a topic that has been discussed a lot.<a href="https:&#x2F;&#x2F;hn.algolia.com&#x2F;?dateRange=all&amp;page=0&amp;prefix=true&amp;query=Section%20174&amp;sort=byPopularity&amp;type=story" rel="nofollow">https:&#x2F;&#x2F;hn.algolia.com&#x2F;?dateRange=all&amp;page=0&amp;prefix=true&amp;que...</a>

I&#x27;m surprised by the lack of discussion about this provision on here. This is the Startup Forum™; I thought it&#x27;d be a bigger deal. Unless it&#x27;s not a big deal in the macro?

The vast majority of tools you can expense the year you buy them.It&#x27;s only large capital expenditures (that usually can be resold for similar amounts as purchased at) that require amortization&#x2F;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. [<a href="https:&#x2F;&#x2F;onekeyresources.milwaukeetool.com&#x2F;en&#x2F;when-to-expense-vs-capitalize" rel="nofollow">https:&#x2F;&#x2F;onekeyresources.milwaukeetool.com&#x2F;en&#x2F;when-to-expense...</a>]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&#x27;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&amp;D, i&#x27;d end up owing a bunch of taxes on the $1mln of income using cash I just don&#x27;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&amp;D there rarely is.Outsourcing can do it though.

&gt; You’re building software.It gets interesting when you think of responding to an outage. Are you &quot;repairing&quot; something that is broken, or &quot;fixing&quot; a bug and improving the software?It&#x27;s hard to analogize what we do to the historical context in which the laws were written.&gt; The startups crying that they shouldn’t have to pay taxes until they’re bigger can deal.The same amount of taxes get paid, it&#x27;s just about when &#x2F; how it is spread out. The rule change means that the youngest and smallest companies have to bear a significant burden. For these companies, the lifespan of software is much shorter, and is arguably much more &quot;researchy&quot; in that we are trying out lots of things to see what works.Large tech companies like MSFT, GOOG, APPL, ... they can manage this because they have the expert accountants and cashflows to weather the change over

A production service is never done. You&#x27;ve realized less than 20% of the total cost in year one, and the payroll spend in years two through five will steadily increase as the team expands. Amortization spreads the front-loaded expense of building a factory out to the same timeframe as the revenue it brings, but software development expenses are slightly back-loaded if anything.

&gt; 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”.Actually the justification is pretty simple.Tech startups are the future of the country and the world. That’s how much of the wealth has been built in this country for the past few decades.And there’s no other country in the world that taxes this way, which means that every other country has an edge over the U.S. now when it comes to tech startups (or frankly, any startup where the majority of the cost is human capital).It’s even worse in Tech because it’s so easy to work remotely so there’s no loss to establishing a company in the UK for example.Finally, if a country does impose a certain taxation disadvantage to itself, it’s usually a trade off against some benefit. But it’s also hard to see what the benefit is here because the government is still getting the same money over a few years span.So it’s dumb because the impact is entirely negative. That’s why no other country has done such a dumb thing either.

It’s not a capital expense because you can’t sell it! Literally no one is going to buy your garbage code, ~ever. It has zero value; in fact it has negative value — you must maintain it or risk security issues etc.The idea that it’s comparable to capital expenses in other industries is ridiculous. Approximately no one buys code. They might buy working businesses that happen to use code for something or another. They don’t buy code.(If you are literally selling code, sure, you can call it a capital expense. That’s approximately nobody though).

&gt; Youre not deleting your repos every year.Maybe you aren’t. Corporate America can be extremely inefficient about building software.

&gt; like building a factoryAlso like building or buying a set of toolsPeople 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.

&gt; Just seeing if I got this right. A McDonalds&#x27; flipper&#x27;s and a SWE&#x27;s wage expense now works the same tax wise?Exactly the oppositeA 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.

&gt; tl;dr - previously companies could choose 1 or 5 years to amortizeJust seeing if I got this right. A McDonalds&#x27; flipper&#x27;s and a SWE&#x27;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 &#x27;fair&#x27; for some definition of fair?

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 &amp; 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)<a href="https:&#x2F;&#x2F;blog.pragmaticengineer.com&#x2F;section-174&#x2F;" rel="nofollow">https:&#x2F;&#x2F;blog.pragmaticengineer.com&#x2F;section-174&#x2F;</a> | <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=38870429">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=38870429</a> (blog post by same Twitter user, Gergely Orosz)<a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=38642461">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=38642461</a> (older tweet from Gergely Orosz)<a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=34627712">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=34627712</a> (largest Ask HN discussion)

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.

It&#x27;s a shitshow and would definitely contribute to more U.S. layoffs and moving development abroad.Not sure who benefits from this.

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

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