After two failed attempts, a bipartisan effort is being made to remedy the issues caused by US tax law Section 174, which forces amortization of software labor
The proposal follows reports that the expensing change had left software companies with unexpectedly large tax bills. A subsequent account tied the Section 174 treatment to reduced hiring, layoffs, and moves of IP abroad, giving the bipartisan push stakes beyond tax compliance.
This was an early step in a longer legislative campaign: Silicon Valley was still pressing senators in 2025 to restore the benefit, before legislation ultimately allowed immediate deductions for US software labor while retaining longer amortization for foreign R&D.
First-order effects
The bipartisan bill would give software businesses a potential route to reverse or soften the tax treatment that requires software-labor costs to be amortized rather than immediately deducted.
Finance and tax teams at affected firms would need to model cash-tax exposure and hiring budgets against a legislative outcome that remained uncertain after two failed attempts.
Second-order effects
If enacted, restoring immediate deductions would reduce a tax-driven disadvantage for US software development relative to the status quo, affecting where companies place engineering work and IP.
The proposal increases pressure on lawmakers to resolve a rule that had already become a source of higher tax bills and operational cuts, rather than leaving companies to plan around it indefinitely.
Third-order effects
The episode shows how tax-accounting rules can function as a technology investment policy: durable differences between treatment of US and foreign R&D can shape location and staffing choices.
The later partial restoration suggests the broader debate will persist around whether R&D incentives should be neutral across where development is performed, rather than merely reinstated for domestic work.
The trend: Section 174 is part of a broader shift in which R&D tax treatment increasingly influences software companies’ investment, hiring, and location decisions.
The bipartisan Tax Deal that @repjasonsmith and @ronwyden struck would help thousands of small businesses that are struggling because of R&D amortization. I've talked to hundreds of my fellow small business owners about this over the past year. Most of them have software...
This is an eye opening thread showing how Section 174 tax changes have wrecked lots of small software shops, many of whom now have tax bills larger than profits. This has been a silent killer of tech companies that the tech press hasn't had the range to cover since it's not AI
I'm thrilled to announce we officially have a deal to expand the Child Tax Credit, build more than 200,000 new affordable homes, and boost our economic competitiveness and innovation. I'll be working around the clock to get it across the finish line.
I continue to be impressed by what Michele is doing vis policy engagement. Anyhow: tax policy is a real thing in the world and egregious mistakes have negative consequences, software edition.
The Tax Relief for American Families and Workers Act builds on proven pro-growth tax policies that will ease the strain on small businesses and foster more Made-In-America innovation. These tax reforms will boost American competitiveness and help American workers and businesses..…
@RepJasonSmith Thank you for negotiating hard for this deal. I hope you can impress upon @SpeakerJohnson how important this legislation is for the survival of small American tech companies. We can't compete with foreign rivals who enjoy full deductibility of engineering labor cos…
“Unless Congress takes action, this change to R&D taxation could start to impact the fundraising math of early-stage startups” https://www.axios.com/...
@imcharliegraham Yes, I would like to see the foreign component fixed as well. There are a ton of overseas small software business founders with Delaware C corps (because that was the responsible thing to do!) who are getting crushed by this and have absolutely no vote or ability…
@mjwhansen This is great. Section 174 as it stands is going to crush a lot of small software startups so revoking/postponing it is good. Would like the intl component revoked too as it makes small US startups less globally competitive.
Yesterday, the Ways and Means Committee passed the Tax Relief for American Families and Workers Act with overwhelming bipartisan support. This bill will allow businesses to expense research and development costs, increase interest deductibility, and permit 100% immediate... [vide…
Good news. Congress might come to their senses on section 174. Other good news, if you already paid out distributions to shareholders to cover, you will likely be able to deduct the full payment in 2024. #yaaycongress https://www.forbes.com/...
Rep. Neal - top Dem on W&M - votes FOR bipartisan tax package that Chair Smith & Finance Chair Wyden negotiated in today's markup Big bipartisan 40-3 showing with only a few Dem no's
This bipartisan deal in the Senate also solves a big, looming problem that business leaders in #ncpol have raised concerns about: Section 174, dealing with amortization of R&D expenses. A compromise that helps both families and business. Good politics! https://www.newsobserver.co…
Today, @RonWyden and I unveiled a common-sense tax package that will strengthen Main Street businesses, rebuild communities, support American families, and boost our competitiveness with China. https://gop-waysandmeans.house.gov/ ...
I remember how plenty US folks on Twitter like to mock the EU on how regulation kills innovation (fair point). The US is now regulating their tech sector with Section 174 so that some of its smaller tech companies & startups consider moving abroad. How is this different?