Comment by Retric | Hacker News Reader

Comment by Retric | Hacker News Reader

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> You keep saying this across this thread, and keep ignoring that Section 174 has now redefined "profitable" for tax purposes to include companies who:

Because generating an asset IE software isn’t a pure loss that’s why you’re doing it in the first place. Companies with a cash flow problem are different than companies which an actual loss.

> i.e., a startup that earns $1mil and spent $8mil in software dev expenses is only able to deduct 10% * 8mil = $800k of expenses, which means that as far as the government is concerned they made a profit of $200k and owe taxes on that on top of their already-net-loss of $7mil.

That assumes 100% of expenses are software development related. But the numbers are imaginary so using your example taxes are 21% of 200k, so 7 million in losses = 7.042 million in losses. A 1/2 of 1% increase, the sky is fucking falling.

Further a competent account would likely want you to carry the majority of those expenses to the future. Given the option many companies voluntarily did so because it made financial sense. You can only carry 80% of losses forward a likely future issue, but these expenses don’t fall under that category.

> That assumes 100% of expenses are software development related. But the numbers are imaginary so using your example taxes are 21% of 200k, so 7 million in losses = 7.042 million in losses. A 1/2 of 1% increase, the sky is fucking falling.

The problem here is that the losses are often in time or future liabilities but the government expects to be paid in cash. Your developers were mostly working for stock options or some other deferred compensation, which may cost you tomorrow but tomorrow you'll have more revenue. Where are you getting the cash to pay the government right now?

> Because generating an asset IE software isn’t a pure loss that’s why you’re doing it in the first place.

Tell me you're not an experienced software engineer without telling me you're not an experienced software engineer.

Code is a liability, not an asset.

> Code is a liability, not an asset.

So you have no idea what that phrase means. If you don’t think code is an asset don’t write it.

O wait obviously that’s not what code is a liability means. Code is a liability in the same way roads or buildings are a liability, they incur an ongoing cost, but removing the US highway system would be just as idiotic as a startup deleting their source repository from a misunderstood idea.

More importantly valueless code stops being a liability because you can abandon it. Calling it a liability implies it has value.

> More importantly valueless code stops being a liability because you can abandon it. Calling it a liability implies it has value.

This is kind of missing the issue though.

Suppose you pay a million dollars this year to develop something that will also cost a million dollars a year to maintain, but is worth over a million dollars a year, so you do it anyway.

So this year you spend a million dollars, make $1.1M, have a profit of $100k. Next year you'll spend a million dollars, make $1.1M, have a profit of $100k. But if you don't do the maintenance, it ceases to comply with changing regulatory requirements and not only has to be shut down but causes you to incur criminal penalties, or develops public security vulnerabilities and then criminals break in and destroy your business and cause you to be sued into bankruptcy by your customers.

In other words, the code creates an obligation that offsets the value of the asset. These two things can easily cancel out so that the total value is ~0 -- or even negative in ways that don't allow you to walk away, e.g. because you entered into a contract to supply this thing for a defined price but underestimated the maintenance cost.

But now the government is telling you that you have something worth most of a million dollars even though it's not worth a dime without putting another million dollars into it -- and even then it still wouldn't be worth two million dollars.

The reason you continue to do it is that the continued development made you $100k this year, not because what you had left at the end of the year that would be worth something without further investment.

> O wait obviously that’s not what code is a liability means. Code is a liability in the same way roads or buildings are a liability, they incur an ongoing cost, but removing the US highway system would be just as idiotic as a startup deleting their source repository from a misunderstood idea.

I love this example! It perfectly illustrates a case where the government intentionally subsidizes a liability that no sane company would take on without government funding. Well said.

So we're agreed that the government should incentivize R&D with a favorable tax code that makes it not completely insane to take on the risk of doing something new.

> It perfectly illustrates a case where the government intentionally subsidizes a liability that no sane company would take on without government funding. Well said.

LOL, try again liabilities like buildings don’t need incentives. Software that is only barely worth maintaining isn’t worth subsidizing, highly valuable software needs no incentives.

If anything you’re making a solid argument government should discourage the creation of software so only the most valuable software is created and maintained. Except the optimum economic efficiency as so often happens occurs without government incentives.

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