Comment by Negitivefrags

Comment by Negitivefrags 7 days ago

Theoretically it’s the same with any asset you pay someone to make.

If you pay someone to make a chair, you don’t deduct the salary. Instead you create an asset valued at what you paid to build it, then depreciate it over time.

The arguement for this is that it would be inconsistent to do otherwise. After all, why should buying a chair from someone else be different than paying an employee to do it?

It’s worth noting that this change brings the USA in line with international financial reporting standards, so it’s not like it’s some crazy unique idea or anything.

PaulDavisThe1st 7 days ago

> Theoretically it’s the same with any asset you pay someone to make.

No, it's not.

Sec. 174 explicitly and specifically refers only to software development.

Also, this:

> If you pay someone to make a chair, you don’t deduct the salary. Instead you create an asset valued at what you paid to build it, then depreciate it over time.

is also incorrect. For most tax filers, and for most things, under current law, you have a choice whether to deduct the expense in the year in which it incurred or to amortize it.

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pc86 7 days ago

If you pay an employee to make a chair, you 100% deduct their salary, immediately. The chair is only a capital expense if you buy it from a company that sells chairs. The company selling the chairs isn't forced to amortize the salaries of their carpenters, so implying that it's normal for companies to be forced to amortize the salaries of their software engineers is, in the most generous possible interpretation, a gross misunderstanding of the law.

> this change brings the USA in line with international financial reporting standards

Which ones?

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Negitivefrags 7 days ago

If you pay people to make 1000 chairs that are just sitting there, do you really think that you don’t have an asset on your books at all? This is called Inventory. It’s certainly an asset.
And an asset doesn’t come into existence out of nowhere. It comes into existence because you paid money for it. And the money you pay for it is indeed the persons salary.
Now sure, it’s possible to get away with not doing this, but it’s not correct by accounting standards to do so.
As for which standards, International Financial Reporting Standard (IFRS)

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- elbear 6 days ago
  
  What other country in the world doesn't allow you to deduct the full salary you pay your employees in one year? I've never heard of this.
  
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NoMoreNicksLeft 6 days ago

>If you pay someone to make a chair, you don’t deduct the salary.

If they make the chair. What if they only draw up blueprints for a chair that isn't manufactured? What if the chair is never manufactured, or won't be manufactured for two years? Until the software is licensed and installed at a customer site, how is this at all like making a chair?

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Volundr 7 days ago

> The arguement for this is that it would be inconsistent to do otherwise. After all, why should buying a chair from someone else be different than paying an employee to do it?

Probably exposing how little I know of accounting... If you buy a chair you have to track it and deduct it over the course of X years?! It's not just an expense the year you bought it?

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pc86 7 days ago

Most of the time you can decide what you want to do. There are exceptions but for most capital expenses (which salary is not despite what proponents of this change would argue), you can choose to either deduct all of it or amortize it. It also depends how you categorize expenses.
A $100 chair is unlikely to get amortized, but a $100 chair as part of $450k office remodel might.

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doctorpangloss 7 days ago

> It’s worth noting that this change brings the USA in line with international financial reporting standards, so it’s not like it’s some crazy unique idea or anything.