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Comment by EntrePrescott | Hacker News Reader

This makes zero sense to me. By what logic would a salary paid this fiscal year (be it for R&D or any other activity, I don't see why there would be any difference there) not be a simple expense to be fully deducted from the revenue in the calculation of the profit for this same fiscal year?

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One of the goal of this kind of accounting is to make "building the thing" and "buying the thing" as closely equivalent as possible for tax purposes. If you treat all the salaries as expenses then

* Company A has 1M in capital, and builds an in-house database with 1M$ of dev salaries. At the end of the year, company A is worth 0$ because they spent all the money.

* Conpany B has 1M in capital and buys (wholly and exclusively) a custom database for 1M$. At the end of the year, Company B is worth about 1M$, because they have 0$ in cash and a 1M$ database.

Clearly there is an issue there, and the only way to make the two situations equivalent is to treat software development as a capital expenditure which is what it is.

Doesn't Company A also have a DB worth $1 million? Or are you simply referring to the way these things are accounted?

It does! But the only way this makes sense is if you treat the expense required to build it as a capital expenditure, which was my point.

Honestly, you don't know what you're talking about.

not only is this completely wrong, but you aren't taxed on assets, and capital has nothing to do with it either.

assuming you meant revenue and income, your example actually perfectly illustrates the problem. Company A has $1MM in revenue, spends $1MM on SE salaries and is taxed on $800k income. Company B has $1MM in revenue, spends $1MM on some AWS db service and has no income to be taxed on.

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