Comment by addaon

Comment by addaon 7 days ago

> That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code.

Software clearly has material value. For software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it. What other estimate of its material value is better than the one that the company purchasing it is demonstrably willing to pay?

yojo 7 days ago

The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive.

If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.

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grogers 7 days ago

How does this compare to a machine that breaks and is thrown away before its amortization is complete? For the machine can you immediately deduct the remaining amount or is it required to continue to spread the value over the original time period?
I would imagine software that is thrown away should be similar?

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- ensignavenger 7 days ago
  
  Generally speaking, yes, you can immediately deduct the non depreciated value. Most machines will be scraped, giving them a "scrape value". You would immediately deduct the difference.
  In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.
  
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  andrewlgood 6 days ago
  
  For clarity, it is “scrap value”
  
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rtpg 7 days ago

I don't get this. You speculative spend 1 million dollars on a new thing. It fails. In one universe you get to deduct 1M from your profit in year 1. In another you get to deduct 1M from your profit, but over 5 years.
I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse?
The cynical thing might be that this helps out big corps by preventing smaller corps from spending their way to success.

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- jonfw 6 days ago
  
  It increases the real cost of engineers. The government is keeping that money interest free, which means the company is losing the time value of money.
  In addition, it gives companies less flexibility to manipulate their tax burden and cash flow, which makes engineering a less appealing investment to the bean counter.
  
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- kfajdsl 6 days ago
  
  Yes, this hurts smaller companies with less capital/cash flow more than larger companies.
  
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ndriscoll 7 days ago

The answer to this seems obvious to me: let the company publish all code and documentation pertaining to failed experiments and release it into the public domain to be allowed to fully depreciate it immediately. If it is actually worthless, they should be happy to do so.

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- jandrewrogers 7 days ago
  
  That doesn’t follow. Code can contain extremely sensitive and/or valuable IP independent of the value of the code as an asset. Reduction to practice frequently fails to produce usable software.
  
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  ndriscoll 7 days ago
  
  That's why I didn't just include code; if you produced valuable design docs as part of your work, that was part of your research too. I'm generally skeptical of the societal utility to offering any protections or special treatment for trade secrets though (the entire point of patents/copyright is to incentivize people to share these things; it's insane to also protect their secrecy), so that no doubt affects my thinking. If you want the deduction for having spent money on R&D that you didn't think was valuable, prove it by giving it up. If it's entangled in other secrets you don't want to share, you get no deduction. Seems fair to me.
  
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- throwaway7783 7 days ago
  
  As long as the same is held true about car designs that never went to production, drug design that were not deemed profitable etc. Why pick on just software?
  
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  ndriscoll 7 days ago
  
  Yes, clearly the same reasoning applies to any copyright, patent, or trade secret (and we should stretch out the depreciation schedule to match the durations of those things. It follows that development of trade secrets would not be deductible. Perhaps a new category of escrowed expiring trade secrets could be created to make it deductible). We could all benefit from companies publishing research that didn't pan out, and it should come at little to no cost to them!
  
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  throwaway7783 7 days ago
  
  As much as I like this Utopia, this will unfortunately never happen in a capitalistic country.
  
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nolok 7 days ago

By that logic so does an accounting book by an accountant, so does an inventory log by a factory hand, ...

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PaulDavisThe1st 7 days ago

It's not a question of what its material value is.

It's a question of whether it is a capital expense that is required to be amortized over 5 or 15 years, or a regular expense that can be deducted in the year in which it is incurred.

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throwaway7783 7 days ago

The price at which it sells the said software? Aka profits after expenses?

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addaon 7 days ago

> The price at which it sells the said software? Aka profits after expenses?
A vanishingly small percentage of software is sold.

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- throwaway7783 7 days ago
  
  If we are being pedantic, sold or rented. I think the issue is on how the concept asset depreciation is applied blindly, as if dev salaries every year is the asset value every year. Unlike other asset classes, there is no easy to way value software beforehand, because you are not buying it from some market.
  
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epistasis 7 days ago

> software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it

Even in the absence of the Trump tax rule, a software company values the software they are building a lot more in financial terms than the cost of building it. Any project where value=cost should be cut, when the value is taking into account the value it brings to the rest of the company.

This is the entire point of the business, after all: take labor, land, and capital and make something that's worth a lot more to the world than the sum of the components.

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nikkwong 7 days ago

You're advertising your rose-colored glasses strongly, my friend. In a perfect world, of course—you're correct. But hiring, project management, and resource allocation are messy endeavors, so your point only rings true under ideal circumstances. The real effect this will have on industry is a chilling effect on hiring as businesses now have to risk-mitigate because of the additional taxation burden. Further, I see this hurting small and less-well resourced companies relatively more so, as they now need to be more scrupulous over hiring.

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- epistasis 7 days ago
  
  Not at all, this is a fundamental difference in pricing and costs. The value of an asset is its price, not its cost. When a firm sets out to buy something for X from a different firm, they value it at X. When they build something with internal resources for a cost of Y, they do not value that asset at its cost Y.
  
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fuzztester 7 days ago

how about all the projects that fail all over the world, all the time? what is the material value of those?

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