In the meantime, the parent comment says "Depreciating means that if you pay an engineer $200k in a year, in tax-world you only had $40k of real expense that year, even though you paid them $200k." and then "So the effect is that it makes engineers much more expensive". This seems to also imply that capitalized expense is worse for tech companies?
In the case of Sec 174, not can but must.
For example, if you build 100 widgets for $1M this year, the labor and materials cost of those widgets are capitalized into inventory. Next year you sell them all for $2M.
Capitalization rules would say you had no profit or loss in the first year, and $1M profit in the second year because the cost of the inventory gets expensed when the inventory is sold.
Fixed assets like buildings, machinery, and now software have pre defined lifetimes that the expense is realized over. In the case of software, it’s 5 years.
Tech companies don’t like this because they want to front load recognition of expenses to pay less taxes today.
When you buy an office chair you capitalize the asset on your books.
The chair manufacturer in turn pays wages to a person to construct the chair. Those wages are not capitalized, the manufacturer deducts them fully when they are incurred.
The main issue is that “software manufacturers” must now depreciate those same wages over 5 years. Which is unique and does not pass a basic common sense sniff test.
The chair manufacturer capitalizes the costs of factory wages into inventory.
They are expenses as cost of goods sold when the inventory is sold.
Which makes sense because they have realized 100% of the value of those expenses when it is sold.
If you hire someone to clean your office, you are not creating an asset so it is expensed
Building software is generally creating a long lived asset