Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

> Correct me if I'm wrong, but if a company hires someone to say, mine coal or brew beer, the expense of those employees is an expense any company can claim a full tax deduction on. If you're a line chef or wait tables, your salary is tax deductible to the restaurant.

The question is: are you getting the value of that work in the same tax year, or is it creating an asset that creates value over time? If you hire a guy to brew a batch of beer, you’re getting the value with that batch of beer. Once you sell that beer, the value is gone.

But if a brewery hires someone to build a fermentation system, then that person’s salary cost must be allocated to capital expenses that must be depreciated over time.

There’s a good argument that most software development is creating an asset that pays off over time. If you hire someone to upgrade the payroll software, you’ll get the value of that in future tax years.

This wasn't my first impression of this, but the more I heard this dicussed the more I'm forming an opinion that there might be some intentional parts of this that while maybe not being good, make sense from a certain narrow perspective.

My assumption is, if tax folks in the US were looking Jealously at US companies with large Multinational presence declaring a lot of their profits abroad. They might have noticed that some of them have large dev presence in US, but through complex accounting, IP transfers, licensing and other actions are able to claim that majority of the value is generated outside of the US.

If a company had, say, 100k software devs, 50k in the US, and 50k scattered across other countries, but claimed the value of it's software was primarily in Puerto Rico and Ireland... In that case, I'd expect questions around the 50k devs in the US.

Is software dev the only activity where this is possible - no, but is currently by the far the largest and the largest growth industry.

> One could argue in the future, for example, that those who operate machines to produce tooling dies, should not have their labor treated as regular expenses, but instead as capital assets because their labor output is captured in assets,

In the future? That's how it works!

> just as Sec 174 treats the labor of software developers as assets.

[I was wrong about the following. I misread the text - and the submission title.] That's not what 174 does.

Taxes on income or capital inherently reduce income and capital. Ditto for sale taxes, which reduces transaction volume.

This is bad for the economy and ultimately reduce our tax base.

About the only thing that doesn't happen is for non-reproducible privileges such as land, intellectual properties, the electromagnetic spectrum, etc.

The IRS released guidance back in 2023: https://www.irs.gov/pub/irs-drop/n-23-63.pdf

It starts on page 23.

Plenty of analysis online by tax firms but I'll quote from this one: https://insightplus.bakermckenzie.com/bm/attachment_dw.actio...

> Generally, activities treated as software development for section 174 purposes include, but are not limited to, the following.

• planning the development of the computer software

• designing the computer software

• building a model of the computer software

• writing source code and converting it to machine-readable code

• testing the computer software (up to the point that a taxpayer places the computer software into service or determines that the computer software is ready for sale or licensing to others)

• producing product master(s), if the taxpayer develops the computer software for sale or licensing to others.

> Activities that are not treated as software development vis-à-vis software developed by a taxpayer for use in its trade or business are as follows:

• training employees and other stakeholders that will use the computer software

• maintenance activities after the taxpayer places the computer software into service

• data conversion activities, except for activities to develop computer software that facilitate access to existing data or data conversion

• installing the computer software and other activities relating to placing the computer software into service

> under what definition of software engineer?

Probably a broad enough definition to net the US Government the greatest tax revenue possible for the effort to enact this.

The answer to all these questions is yes, i don't see the point in trying to obfuscate this with artificial complexity.

What about HR, etc who use excel documents?

IF they are using it rather than developing it, no. If they put in 5 hours a week writing code, yes for those 5 hours. This isn't hard.

> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.

For me that sounds like everyone and everything in a company that develops software of any kind, including low-/no-code stuff, accounting, HR, travel costs, massages. Like who is not "in connection with the development of any software" in a company that develops software? Without further definitions this is even worse then just software engineering costs.

> This [1] is the only definition the code actually give.

Like most of our tax code, its overly complicated by unclear or incomplete codes.

The IRS will give guidance with examples, but those examples are still incomplete.

Ultimately our tax code always comes down to the filer doing whatever they (a) think they can get away with or (b) are willing to defend if they get audited.

I’m a solo founder and sometimes outsource projects. How does that work if I pay a contractor a few thousand for a project? Are contractors allowed to be deducted fully at 100% expense?

Yes, this is an insane policy that reflects a complete ignorance of the on-ground realities. It was almost certainly only passed to help the 2017 tax bill's legislative scoring by the CBO.

I posted about this on Reddit the other day. https://www.reddit.com/r/Economics/comments/1l3lo7j/the_hidd...

> Yeah, it's pretty much completely insane. Although in your example I think you accidentally picked numbers that actually work out precisely to zero dollars in taxable income. The company (if US-based) would have zero taxable income in the first year because they can deduct 1/5th of the salaries (because there is a five year amortization for US companies, and 15 year for foreign companies), so they would have $1m in gross income and $1m in deductions resulting in $0 in taxable income. But you can tweak the numbers a bit to get the result you intended, e.g., $1m in revenue and $2.5m in salary would result in $500,000 additional taxable income under the TCJA's version of Section 174 over the previous version of the code, even though in reality the company operated at a net loss. (edit, just looked this up and actually the amortization is dated from the midyear of the tax year in which the expense is incurred, which is also just fucking bonkers, but that means I was incorrect and your example does yield a taxable income, because the first year in your example would have $500k in deductions rather than the full 20% of the $5m expense, resulting in $500k taxable profit)

> All of which means that we treat R&D salaries less favorably than ordinary salaries, which are fully deductible in the year they are incurred. So our tax code now not only fails to incentivize R&D as under the previous R&D tax credit regime, it actively treats R&D employee salaries worse than non-R&D salaries. Even though R&D jobs are generally the highly skilled, well compensated, white collar careers we want to keep in this country.

> Section 174 also specifically designates all software development as R&D, so there's no way to develop software while claiming it is not R&D. I'm sure accountants have been jumping through hoops in their efforts to reclassify other kinds of product development jobs as not R&D, which is the exact opposite of what R&D tax studies used to do, which was to label as much employee compensation as R&D expenses as possible, because §174 and the related, intersecting provisions of §41 (the R&D tax credit itself), treated R&D salaries more favorably than other salaries. To a certain extent, the OP article understated how much of a swing this revision to the tax code is. It isn't just that we are treating R&D salaries worse than we used to, but that we are treating them even worse than we treat other kinds of salaries. Which is bizarre in a world where the policy objective is to retain R&D jobs in the US.

> The purpose of capitalization is to match expenses to benefits over multiple tax years. So that the tax payer can't take a huge tax deduction up front to generate an economically fictional loss in the short term on an asset that will generate income over the many years. Amortization forces them to deduct the expense of the asset over time as the benefit accrues over time.

> This model is a poor fit for software. Construction workers produce an asset with a generally predictable and known useful lifetime and long-term stable value that is independent of the business. You can always sell a building.

> Software, however, does not generally create value for very long if it is not subject to continuous development and improvement. It also decays very rapidly when not maintained (e.g. security patches), yet there is no distinction in the tax code between new development and production support/maintenance software development. Nor would any such distinction make any sense in reality, because unlike a physical asset software is subject to continuous change and there is little distinction between adding new features and maintaining existing features. This approach to capitalizing salaries contrasts with other capitalized assets like buildings, where most ordinary maintenance costs are deducted in the current year, not capitalized.

> The value of software can be much harder to predict than other capitalized assets. Both in terms of the demand, but also in terms of the technical capability to deliver the desired product. Which is why it's considered R&D in the first place: there is inherent technical risk in many if not most software projects which is not present in other kinds of economic activities that produce capitalized assets.

> Software is often so specialized that it cannot be sold on to a third-party without selling the entire business around the software, including existing customers, distribution and sales channels, and supporting software engineering staff. It's not a liquid, fungible, alienable asset the way other capitalized assets typically are. There is no real market for the source code to Reddit, for example, because there is nothing technically special about Reddit. The company's value derives from the user base, the community, and the data, not anything particularly special about its software.

> The tax code also confuses the output of the software development process with the value software can generate. Software developers produce code. Some of that code is valuable, much is not. Unlike with other capitalized assets, you can't know in advance whether the software you produce actually works 100% of the time, even with robust testing and QA. Whereas you can be quite certain that a building will continue to function as a building if it is built correctly. Many software engineers actually regard code as a liability rather than an asset. The more you have to maintain, the more work you have to do to maintain the code base and the harder it is to add new features or debug issues with existing features. So if you can deliver the same capability to your customers with less code, then that is preferable. Which is to say, the output of the software development process is much more loosely tied to predictable economic value than other capitalized assets.

> Software is also frequently delivered as a service, which highlights the inanity of treating software as a fixed, long-term asset. The team maintaining a SaaS will handle day-to-day site reliability engineering work, which is never a stable output but needs to be constantly tweaked to match actual usage patterns.

> Last, and this is implicit in much of the above, but unlike other capitalized assets, software is never really complete. There are always more features, more optimizations, more bug fixes. Software development is never steady state. Either the software isn't being developed actively and quickly loses nearly all value due to code rot, or it is being actively maintained and improved and is producing value. Buildings don't stop functioning as buildings when you stop paying the construction workers. Thus, software development does not produce a long-term fixed asset but rather is a continuous service delivery process, where the revenue produced in any given year was produced by the same year expenses to maintain the software. Thus, software expenses and revenues are mostly naturally aligned in a single tax year, and therefore software is not suitable for amortization.

From the wording, it sounds like it applies to contracting non-US resident software development as well.

> Is an FPGA or ASIC engineer still considered a software engineer if they are writing in HDLs?

Of course not. The Glorious Leader is rescuing the american hardware sector.

There is a substantially more definition, but the tl;dr is this an R&D expense, or COGS expense?

R&D is amortized, COGS is not.

This seems like the biggest reason behind the mass layoffs, not the end of ZIRP.

Only if you assume that the 900k in costs is exclusively the salary of 5 engineers. Realistically you will employ other people and have overhead costs like rent, etc., and I assume that other non-salary costs (health insurance, etc.) aren't included (b/c I assume health insurance, like rent, is a company-wide overhead cost and that companies aren't expected to carve out what portion of that is going to the software folks but what do I know?).

But if we more realistically assume it's 3 software folks at 200k, then the taxable profit is 580k (100 profit + 3*(200k salary - 40k ammortized))

> That gives you a profit, from a tax perspective, of $820k.

> But you only have $100k of actual dollars.

> Good luck paying your taxes!

a lot of people here are conflating "taxable income" and "the amount owed in taxes" for some reason.

if I earn $100/year, and I can deduct $50 of that, my tax bill is not $50. It is some percentage of $50, usually a low number for businesses. (Amazon regularly pays $0/year in taxes.)

depending on the tax rates and the locality of that business, the amount owed on tax is going to be anywhere from $0 to $50, and it is going to heavily favor the low end of that spectrum. I don't think any business pays 100% of its taxable income in taxes unless they have been heavily fined.

$100k is likely far more than enough to pay the tax on $820k of taxable income for a business. It could be enough to pay that tax bill 10 times over, it's hard to say.

my point is that taxable income != tax owed.

My taxes (flow through LLC) are significantly higher than my income for 2024 (like hundreds of k).

> 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?

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.

I'm not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you're expected to keep extracting value from it over the years, so you can't get a deduction for the whole expense when you first pay for it.

If that's what this is about, it's absurd not for the reason you say (salaries are not a bad proxy for value, since you expect the profit will be greater) but because you'll probably keep paying for maintenance and evolving the software.

> That's nuts, since a payroll should never be considered an asset.

That's because it's not "a payroll". When a payrolled resource builds a combustion engine that powers the office where the rest of the payrolled resources work every day and that engine lasts 15 years, then its a very clearly a capital expense and an asset.

> 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.

We all do this at the conclusion of every successful job interview. And performance review. And budget review. IMO it's a reasonable floor on the value engineers produce: if you produced an asset worth less than your salary you should be concerned for your career.

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.

"Other payroll employees" is doing a lot of lifting.

The question is really, payroll is made up of builders, vs nonbuilders.

Are devs different from other builders? The dirty secret is that they are not.

Ford engineers, P&G food researchers, and architect salaries are capitalized just like Software development costs.

But, in the case of software development, only those builders are getting a nice subsidy.

A world where we treat all workers as expenses is not likely since it means the end of US GAAP. So, we must treat all builders like builders . There shouldn't be special favors for some any specific builder group.

The logic outlined in other posts is that this is because software is seen as an asset that nets dividend. As such, like with houses you can’t deduct all the costs at once because you keep extracting value out of it.

I’m not sure whether I understand why that now applies only to software and not other things.

I don't think that's quite right? The value of the asset itself is depreciated over years, sure, but the payroll itself for the employees is just an immediate expense.

But isn't the reasoning there that you could turn around and sell that building right away?

Or any company in its first 5 years of operation. (Or any company, period, within the first 5 years of the law being introduced.)

It takes 5 years to fill the pipeline, so even if the steady state would be fine, getting to that state might be impossible.

Most startups won’t make it five years especially if they have to raise or borrow money to pay taxes on phantom profit.

There is no rational basis for this tax change it was a vindictive attack on blue states in the first Trump admin and an attack on California and SV in particular along with the SALT tax changes.

It's also bad because of the time value of money (deductions in the future are worth less than deductions now).

But I agree that much of the outrage seems due to a confusion that 80% of the deduction is lost completely (vs deferred).

Exactly. That’s why when a company builds a factory it’s considered a capital investment. Because it’s built by slaves. It’s not like the workers are being paid for their labor or anything.

It found it helpful that it was presented that simply. The point isn’t what else is or isn’t deductible, it’s that engineering salaries went from being deductible to being amortized.

It may result in an outsized penalty to bootstrapped companies but being VC funded doesn't make you immune to this. VC funded companies with revenue will not be able to offset their revenue by reinvesting in R&D (software development) expenses, so in some cases they may be seen as having a profit when they previously wouldn't have. In those cases they'd have a tax burden.

So implicitly Trump values foreign developers at 3x domestic ones

for the big companies, this makes enough sense, but theres been new businesses opened since 2017, who did not benefit from that tax holiday. why should they be dealimg with this tax hike for everytime they grow their business?

i dont know how this is anti-worker? it's an extra cost to growing the number of people youre hiring, where you need them for 5 years. i guess businesses should start witholding RSUs and starting bonuses until youve been there for 5 years to match your tax ammortization?

It's actively being discussed in Congress and is a part of OBBBA.

" H.R.1990 - American Innovation and R&D Competitiveness Act of 2025 "

https://www.congress.gov/bill/119th-congress/house-bill/1990...

> A bipartisan bill reintroduced in Congress last month could offer long-awaited relief to small tech companies hit hardest by an obscure federal tax change — one that many founders say is threatening their survival.

> Industry groups from the Small Software Business Alliance to the National Venture Capital Association and TECNA are backing the bill, which sits in committee. Over 100 House members have signed on. The bill would reverse the changes not just going forward, but also retroactively.

https://technical.ly/startups/r-d-tax-change-reversal-startu...

> On May 13, the House Ways and Means Committee passed “The One, Big Beautiful Bill.” This bill includes several provisions that, if enacted, will be important to businesses claiming research and development incentives:

> The bill would suspend the current amortization requirement for domestic R&D expenses and allow companies to fully deduct domestic research costs in the year incurred for tax years beginning January 1, 2025 and ending December 31, 2029.

https://www.crowell.com/en/insights/client-alerts/house-comm...

> The OBBBA suspends required capitalization of domestic research and experimental expenditures for amounts paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. Under the OBBBA, at the taxpayer’s election, such expenditures can be: deducted as paid or incurred under new Section 174A(a),

https://www.skadden.com/insights/publications/2025/05/the-on...

> Maybe this is a dumb question, but if you only deduct part of their salary in the first year, what happens if you have a software developer for several years?

Not dumb at all! In the second year, you get to deduct ⅕th of the previous year’s salary and ⅕th of the current year’s salary; likewise, in the third year you get to deduct ⅕th of the first year’s salary, ⅕th of the second year’s salary and ⅕th of the third year’s salary.

The key thing is that in the fifth and following years, a business would deduct a fifth of each of the previous five year’s engineering payrolls. This is not great for a growing business, but it’s murder on a startup trying to grow from zero.

After five years you are back to the status quo. It is a short term problem, long term there is no difference between the two. It primarily hurts young companies that don't take VC money, and shortens the runway of those who do.

Start ups are hard, most fail. But what rational national policy makes is several orders of magnitude harder to succeed during the riskiest period by adding tax provisions on pretend profits?

The reasoning is that the deductions for expenses should be applied for the same year as the income they bring in. For expenses that will cover multiple years, they are spread out over those years.

The only logic was to make the Trump 2017 tax cuts look "revenue neutral". They were cooking the books so the CBO would give the tax cuts a passing grade.

https://americansfortaxfairness.org/ways-means-trump-tax-law... Quote: Corporations have traditionally been allowed to deduct all of their research expenses in the year incurred, even though a lot of research pays off slowly so its costs should similarly be written off over time. Adopting this position, and as a way to partially pay for its big corporate-rate cut, the Trump-GOP tax law decreed that starting in 2022 companies would have to write off research and experimentation expenses gradually: over five years for domestic research, 15 years for foreign. This requirement to “amortize” the expense over time reduces the value of the deduction, increasing corporations’ taxable income and requiring them to pay more in income taxes upfront. The Ways & Means legislation proposes to retroactively reverse this provision.

Accounting likes to recognize expenses with revenues. If an asset will be producing revenue for five years, its cost is recognized over that same time span.

Then you have to amortize the costs over 15 years, instead of 5.

https://www.law.cornell.edu/uscode/text/26/174

> (3) Software development

> For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.

Strictly speaking every single one of those jobs falls under that role. If you "develop" any software, which arguably includes even making or maintaining excel spreadsheets (as excel is a graphical array lang inspired by APL), then you seem to fall under this umbrella.

Nothing. The calculation has nothing to do with people. It’s about what the company spends - and some kind of spending is capitalized depending on what activity it was related to and what the output was. That doesn’t change if the employee that you paid a salary to leaves, or the company that you bought materials from disappears, etc.

I think it was more along the line that R&D had been formally encouraged with special expensing rules and in 2017 they removed the special treatment.

No, this is not how it works. They can still deduct the entire first year of salary even if the person is let go, as that salary is considered a capital expense. There is no incentive to keep the person on payroll because of this policy.

Well, we had massive layoffs, so I don't think the incentives worked.

It means you need more money early, to pay taxes on theoretical future profits. That means it costs more. That means you can afford less on the same money. That means that you need to lay off people to maintain the same costs.

If you sold the software asset to another company you don’t get an asset on your books.

> Can't they be deducted the same way as accountants or other functions?

No.

You jest, but you’ve also touched upon something interesting. Is this exactly what companies are trying to do? To the IRS: “We employ zero software engineers—only AI ranch hands to wrangle the AI in the right direction.”

You contact your representatives in Congress (mail, phone, in person at town halls and such) and say "hey, stop passing giant omnibus bills". You encourage others to do the same. That's all you can do, as a citizen.

Unfortunately it won't make a difference because the vast majority of Americans simply do not care. So very few people will be putting pressure on their representatives, and nothing will change.

You don't. That's how bills are passed: everyone adds a little of what they want. To the extreme, it's called "pork barrel politics", but there's a whole continuum between that and a basic compromise.

Exactly. The issue isn't whether capitalizing salaries is "humane" or "inhumane," as some comments suggest. It's about matching expenses to their corresponding revenue. When you develop software that contributes to revenue over a period, those expenses should be spread out. Capitalized items are simply deferred expenses. For example, when you construct a building, construction workers' salaries are capitalized and added to the building's book value, which is then depreciated over time.

Almost all other payroll is deductible. Why is salary for someone building a house deductible, but salary for someone building a for loop a capital expense

Look into when this started and why and you might understand it

Software engineers hired for custom, in house work are not building a fixed piece of software with the intention of letting it loose unchanged for the next five years.

Software engineers hired to build product are not exclusively building a finished product, and are increasingly necessary as part of the expense of operating that product long term. Industry trends have gone towards combining and blending developement, security, operations, and design.

You're bringing up the question of "what is a fair tax rate," which is reasonable.

The questions of this legislation, though, are different:

Should we incentivize companies to hire corporate executives instead of engineers?

Should we favor trillion dollar companies over startups? (It is much cheaper for Amazon to loan money to the government than three people starting a new venture from scratch, so this favors concentration.)

If you agree that we should discourage hiring engineers in favor of management, that concentration is good, and that low corporate tax rates are good, then this legislation is perfect.

I say that it's good if you believe in low corporate tax rates because this legislation was passed to pay for overall corporate tax cuts, which primarily benefits the largest companies. Amazon actually pays $11.3 billion in income taxes a year (not zero), so on net, even though they have a lot of software engineers, they benefit from this legislation, because they effectively traded having to float money to the government in exchange for lower tax rates.

Big companies care about tax rates more than liquidity, because their borrowing rates are cheap, whereas small companies care more about liquidity (they effectively cannot borrow, or it is very expensive) and their profits are low. So this effectively subsidizes big companies at the cost of small companies.

That's not really the issue (and I say this as a socialist). The issue is that it's a weak and very leaky definition that attempts to redefine anyone that touches "software development" away from being taxed like employees into being taxed like machines that produce assets at the same value as their cost of operating.

This punishes small businesses and new businesses more than any large org because it massively increases the cost of operating for the first few years.

And importantly it just doesn't do so consistently.

Orgs should have a higher tax burden. This just doesn't do that, instead this is punishing orgs for trying to do new things and rewarding existing momentum (i.e. the large corporations that already have a profitable revenue stream and a long trail of employment history).

I agree Amazon should pay taxes. But this bill is not the way to make such companies pay taxes. It will kill competition and startups along the way. That is the crux of the issue.

Edit: Looks like Amazon did indeed pay 15B+ federal taxes in 2024 (excluding sales tax etc)

I haven't looked at the tax rule in detail, but it looks like the "half year convention" for amortization applies.

The "half year convention" means that when you amortize a purchase, it's assumed you purchased it exactly halfway through the year, so you can only deduct half the amortization in the first year that you would normally (and the other half is in the year after the depreciation period).

So it looks like

year 1: 1/10

year 2: 1/5 + 1/10

year 3: 1/5 + 1/5 + 1/10

year 4: 1/5 + 1/5 + 1/5 + 1/10

year 5: 1/5 + 1/5 + 1/5 + 1/5 + 1/10

year 6: 1/5 + 1/5 + 1/5 + 1/5 + 1/5 (the last 1/5 being the other half from year 1 and the 1/10 from year 6).

modulo accounting shenanigans company like amazon is ~ unaffected by this rule since its capable of amortizing salaries anyways

Even if Amazon pays no corporate income tax (only one category out of many), they pay much more in taxes per year than you would in several lifetimes.

The phrase “fair share” is political, which is to say meaningless. The people who have earnestly invoked this phrase in my experience have resisted requests to define the term and have sometimes launched personal attacks for daring to raise the question. Will you break this streak? What in concrete terms is Amazon’s fair share? Your fair share? If they differ materially, why?

I’m a capitalist and therefore wish zero ill toward you. Cronyists, authoritarians, and collectivists may want to abuse you, and that is a contemptible way to treat one’s fellow humans. Both parties to a free exchange benefit. Both sides can win because it is not a zero-sum game. As a matter of fact, you are advocating for a game that your side cannot possibly win. Consider that Amazon has enormous incentive to hire the very tippy-top best accountants and tax attorneys to find every crack in the tax code that middling staffers and nepo hires can barely scribble. It does create some benefit to society in the form of the incomes that these highly paid tax pros generate, the comforts it affords them, and the downstream jobs demand for those comforts creates. But in the big picture, it’s adversarial rather than constructive. Certainly we can come up with a more peaceful and constructive arrangement.

Just to give you some perspective...this comment:

> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share.

Is the equivalent of a finance person saying to a developer "can't you just hire more developers and we can build our product faster". In other words, it's not that simple.

> what is the corporate tax rate?

21%

> It's not 100%, so you're deducting a fraction developer's salary from your income, right, you're not saving that much on your tax bill each year. you're paying tax on the income you used to pay the developer.

Which is a problem if you don’t have the money to pay the tax.

Let’s combine your and the parent’s examples: 1 principal engineer @ $300,000/year; 3 engineers @ $200,000/year = $900,000/year. $1,000,000 in sales.

year 1: Company makes $1,000,000 and pays $900,000 to engineers for a $100,000 cash profit; it deducts $180,000 from $1,000,000 for a $820,000 paper profit, and owes $172,200 in taxes. Since $172,000 > $100,000, it has a $72,000 cash loss for the year. There is not year 2.

Or maybe it raises enough capital to have a cash cushion. A similar thing happens in year 2: it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $360,000 from $1,000,000 for a $640,000 paper profit and owes $134,400 in taxes, still more than the cash profit. The cumulative cash losses are now $106,400.

Once again in year 3 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $540,000 from $1,000,000 for a $460,000 paper profit and owes $96,600 in taxes. Hey, it doesn’t owe more than it made in taxes! On the other hand, its cumulative cash losses are now $103,000. Three years, three million in revenue, 2.7 million in expenses but it’s in the hole by $103,000, still more than its annual profit.

In year 4 it makes $1,000,000 and pays $900,000 to the engineers for a $100,000 annual cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. It still has a cumulative $61,800 cash loss.

In year 5 it makes $1,000,000 and pays $900,000 for a $100,000 annual cash profit, deducts $900,000 from $1,000,000 for a $100,000 paper profit and a $21,000 tax bill. Good news, the company now has a cumulative cash gain! At the end of five years and $5,000,000 in sales the capital owners have made … $17,200. The engineers made $4,500,000 and the government made $483,000.

In year 6 it makes $1,000,000 and pays nothing (this is very unrealistic, because in the real world every product requires maintenance …) for a $1,000,000 cash profit, deducts $720,000 from $1,000,000 for a $280,000 paper profit and a $58,800 tax bill. People complain that it’s only paying a 5.88% tax rate, ignoring the years of amortised losses. But hey, after $6,000,000 in sales the owners finally have $958,400. They take it as a dividend and it gets taxed at the top marginal rate, so they pay an additional $354,608 in taxes.

In the real world, of course, sales may or may not cover salaries, sales may increase or decrease from year to year, markets may change and so forth.

> I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please.

That’s an impossible target. Any random person can say, unreasonably, that someone else is a ‘lamprey on society.’

> I'm sure the capitalists among you will want me dead for saying this, but: pay your fair share. I don't care what the law says, pay enough that no one can say that you're a lamprey on society, please.

They’re gonna lobby to get as low taxes as they can. Why would they do anything else? That people think they are “lamprey” is (or would be) a minuscule problem in a country like America.

Corporate income taxes are treated differently than personal income taxes. You absolutely can deduct corporate expenses in Canada.

Your comment would be much more helpful if you explained how op is wrong or linked to another resource or prior comment that did so.

…could you expand on what part is inaccurate?