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
> Why is salary for someone building a house deductible, but salary for someone building a for loop a capital expense.
If the “house” (or the for loop) is sold and gone, it’s not an asset and the cost of the goods sold — salaries included - is an expense.
If the “house” (or the for loop) is kept and used, it’s an asset and the cost of producing the asset — salaries included - is capitalized.
(There are differences betweeen the “house” and the for loop but not at the extremes which are clear. I imagine by “house” you mean some building that makes sense in a commercial or industrial context like a warehouse.)
Salary for building assets generally are capitalizable. Construction companies have a special carve out because they typically are hired to build the assets for someone else and are paid for the completion of the construction work.
A factory worker building a product to be sold is capitalized into inventory
The product can be capitalised into inventory. The factory worker's salary is just a cost.
The key thing here is that while you generally are expected to and allowed to consider a produced good an asset, it's not assumed that paying someone salary translates immediately into an asset... unless it's software under this new rule for some reason
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.
Why is software special? Why is all other payroll not treated like this?
In reality, this is something made up to balance a budget while pushing the consequences beyond the next election. It isn't a well intentioned accounting principle
It’s not just software. Software developers are just the most vocal people talking about it. I worked a company that owned nuclear power plants. We did R&D on how to make the power plants work more efficiently and safely. Some of the work we did qualified as R&D and could be capitalized. This mattered as the US government gave tax credits for eligible R&D. The tax credits directly reduced your tax bill.
Under these rules no. If the "machine" is software, payroll is considered a capital expense and an asset. If it's an actual machine, payroll for building it is fully deductible, like most other payroll.
Software used to work like other payroll until fairly recently. If you want to understand this figure out why that changed and what the actual motivation behind it was
> If it's an actual machine, payroll for building it is fully deductible, like most other payroll.
Not if the machine is used as an integral part of manufacturing, production, or extraction, or an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in a trade or business of furnishing any such service, or is a research or storage facility used in connection with any of the foregoing activities.
Example 4. Acquisition or production cost.
D purchases and produces jigs, dies, molds, and patterns for use in the manufacture of D's products. Assume that each of these items is a unit of property as determined under § 1.263(a)-3(e) and is not a material and supply under § 1.162-3(c)(1). D is required to capitalize under paragraph (d)(1) of this section the amounts paid to acquire and produce the jigs, dies, molds, and patterns.
which applies for the part of the work producing a tangible asset; it was an option for software development before. Now all software is considered such an asset, which is a huge change and distinct from how other labor works
Buy they very actively push and lobby to end those peaceful times, ie second Iraq invasion for completely made up reasons, or stay in Afghanistan way beyond anything reasonable, when it was clear there is no winning possible.
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