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.

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?

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.

For clarity, it is “scrap value”

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.

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.

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.

That is making assumptions that aren’t based in reality. Serious software R&D stopped relying on patents and copyrights years ago because they are effectively non-enforceable in many cases.

A significant percentage of algorithm and foundational computer science R&D in software is now protected exclusively via trade secrets. There are no other practical options. This wasn’t always the case but all other forms of protection have steadily eroded over the last couple decades.

Weaponizing the tax code because you have an ideological aversion to trade secrets doesn’t seem fair to me.

It's not really "weaponizing the tax code because of an ideological aversion"; it's more:

* It makes sense to tax capital assets as such.

* If companies do R&D and think the results are valuable enough to be kept secret, then obviously they're an asset.

* Depreciation is because real-world assets actually require ongoing maintenance or become worthless over time, but information does not.

* Finite-term IP grants (e.g. copyrights/patents) do become worthless over time, so a depreciation schedule makes sense.

* Trade secrets never expire, so it doesn't make sense to depreciate them. If they never get out, they remain an asset forever. So their development shouldn't be deductible. If they do get out, the company could release all of their (now presumably useless) info on it then for the deduction from their development.

Some information's value is absolutely time sensitive, and will decrease in time, or based on events. But otherwise, very interesting perspective.

Cue LLM-driven generation of garbage research to release as "useless" so I can deduct actual research.

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?

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!

As much as I like this Utopia, this will unfortunately never happen in a capitalistic country.

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.

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.

Yes, this hurts smaller companies with less capital/cash flow more than larger companies.

> 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.

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.

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.

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

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

A vanishingly small percentage of software is sold.

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.

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

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.

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