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.