

Ask HN: How to write off software development cost on taxes - singer

Can anyone offer any advice on writing off the time it takes to research and develop software? Assuming that you're writing and selling your own software, this time must be worth something since it's the sole factor in turning a profit.
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patio11
Talk to an accountant. There is an R&D tax credit in the US which
substantially every software business is eligible for. However, the amount of
paperwork required to qualify for it and rigorously document how you arrived
at the number you quote the IRS doesn't make sense until you're closer to a
Fog Creek or 37Signals than to a sole proprietor.

A different option is to use the time you've spent on the project as part of
the basis for the IP you're developing, and claim a non-zero basis when you
sell, thus reducing the amount of capital gains taxes you have to pay versus
having a cost basis of $0. Again, this gets heady quickly: talk to an
accountant.

Personally, at my scales, I find it easier to bill clients $10 than to
decrease my tax burden by $1.

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_delirium
Business owners generally cannot count their own time spent on their business
as a business expense. Software here is no different than a restaurant owner
trying to write off the time it takes him/her to develop a menu, negotiate
with suppliers, or manage employees: not allowed. It's assumed that as a
business owner, spending your time on the business is what you do, much like
as an employee, spending your time on your job is what you do; an employee
cannot write off "time spent on my job" from their taxes, and you can't write
off "time spent on my business".

One possibility, however, is to pay yourself a salary. Then from the business
side, you could write off the salary as a business expense. But now you will
pay personal income taxes on the salary. Also, you cannot do this if you're a
sole proprietor, and even if you're incorporated, should probably consult with
an accountant and/or lawyer to make sure it's legit in your case.

