Thanks. Capitalized expense means the expense can be amortized over years? If so, the short-term profit can be higher than expensed cost? That sounds bad in this context as more profit means more tax. However, the OP seems to argue that capitalized expense is good for tech companies.
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?
Capitalized means it’s treated as an investment into an asset rather than just a cost of doing business. The reason we do this is because we want revenue and expenses to reasonably match the time period where their value comes into play.
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.
> Capitalized expense means the expense can be amortized over years?
In the case of Sec 174, not can but must.