Does Section 174 hurt outsourced tech teams? It’s not the end of nearshoring—just a push toward better global delivery.
When Section 174 went into effect, many executives feared the end of global software development as we know it. By changing how U.S. companies expense R&D, the law gave domestic engineers a win — and nearshore/offshore teams a 15-year amortization bill.
Here’s the key points:
This distinction has created new questions for U.S. CFOs and CTOs working with nearshore partners, or that are thinking about outsourcing software development: Does Section 174 make outsourcing less attractive, or are the operational and cost benefits still stronger than the tax disadvantage?
Some might conclude that this is the beginning of the end for outsourced talent, but let’s be clear: it didn’t close the door, it created a stress test. Even with the reversal of section 174, nearshore teams can still be a competitive advantage.
And the companies that come out stronger will not be the ones retreating to local-only hiring. They will be the ones who raise their game — orchestrating smarter global delivery models that balance cost, speed, and continuity.
Today’s shortage of skilled engineers in the U.S. isn’t going away. Even with domestic deductions restored, companies cannot meet demand relying solely on local talent. The biggest risk isn’t tax complexity. It’s talent scarcity, churn, and delay.
Even with more favorable tax treatment for U.S. engineers, the reality is that most companies face an ongoing talent shortage in areas like cloud, AI, automation, and modern frameworks. The question isn’t just whether hiring U.S. developers is more convenient, but whether it’s feasible at all.
Here’s what the numbers show:
On top of hiring, retention remains a critical issue. The “war for talent” is very real: replacing a high-performing tech employee can cost 1.5 to 2.5 times their annual salary—and losing them affects productivity, morale, and speed of delivery.
So, for many U.S. companies, the issue is not debating whether they should take advantage of a tax benefit on talent they can’t even find. The real challenge is addressing the fierce competition for niche skills that evolve rapidly, with the ‘half-life’ of tech expertise dropping to just 2.5 years in some cases.
What Section 174 does is raise the bar for how organizations think about global talent. The winners will no longer be those chasing the lowest hourly rate. They’ll be the ones embedding nearshore and offshore engineers into their innovation engines, where cultural alignment, delivery continuity, and process discipline outweigh the tax math.
The right global delivery model can offset headwinds with even stronger tailwinds:
The U.S. tech talent pipeline isn’t keeping up with demand, particularly in areas like cloud architecture, AI/ML, automation, and modern frameworks. Hiring for these specialized roles often takes months—and even then, companies may settle for less than ideal fits. Nearshore partners dramatically shorten this cycle. For a U.S. company, this means moving from requisition to onboarding in weeks rather than quarters, accelerating critical initiatives without compromising on quality.
One of the biggest drains on U.S. engineering teams is the relentless push to deliver faster without burning out. Nearshore models solve this by creating a “follow-the-sun” rhythm of delivery. Teams aligned in time zones just a few hours away can overlap with U.S. business hours for collaboration, then continue progress into extended work cycles. The result is faster time-to-market, reduced bottlenecks, and the ability to maintain sustainable workloads for domestic engineers. Instead of choosing between speed and team well-being, companies get both.
Outsourcing has historically struggled with the perception of cultural and communication gaps. Nearshore outsourcing directly addresses that concern. Engineers from Latin America share not only overlapping work hours with the U.S. but also strong cultural and business alignment, making collaboration seamless. Add bilingual proficiency and proven experience working alongside U.S. teams, and the barriers that once caused friction in offshore models largely disappear. For CFOs and CTOs, this cultural alignment translates into trust: teams understand expectations, deliver with accountability, and integrate smoothly into corporate structures. It’s not about “outsiders” doing the work—it’s about extending the team with highly capable, well-aligned professionals.
At Jalasoft, we’ve seen this firsthand. U.S. companies are adapting by blending U.S.-based leadership with nearshore squads across Latin America, ensuring both CFOs and CTOs can back the model. It’s not about choosing local or global — it’s about designing the right mix to scale smarter.
The smartest companies don’t think of outsourcing as “all or nothing.” Instead, they build hybrid models: a core domestic team supported by specialized nearshore squads. This approach balances tax efficiency with the flexibility, scalability, and resilience global teams provide. Section 174 may tweak the numbers, but it doesn’t change the strategic value of having a scalable, distributed workforce.
These companies design smarter models that will endure the change of governments and legislations. They keep a minimal U.S. core team for tax efficiency and embed domestic leads to maintain control and governance, whilst leveraging specialized nearshore squads to scale faster, reduce costs, and cover niche skill gaps.
Why does this matter?
This structure is a trust multiplier that helps CFOs and CTOs green-light outsourcing initiatives with confidence.
There’s another factor too often overlooked: purpose. At Jalasoft, our model is built on education. For more than 20 years, we’ve reinvested in training thousands of aspiring engineers through Jala University, creating a pipeline of world-class talent committed to four-year engagements.
That means continuity, lower churn, and stronger alignment for clients. But it also means every deal with us fuels opportunity in underserved communities. For companies balancing shareholder value with social responsibility, that’s not just good business — it’s the right thing to do
Section 174 may have changed the tax math, but it didn’t change the business reality: the need for reliable, high-performing engineering talent is only growing.
The leaders who thrive in this next chapter won’t ask, “local or global?” They’ll orchestrate the best of both — combining domestic leadership with purpose-driven nearshore teams to innovate faster, build stronger, and scale smarter.
At Jalasoft, we believe the real edge isn’t cost savings. It’s talent that delivers with continuity, cultural alignment, and purpose.
About the Author:
Celeste Anderson is the Chief Revenue Officer at Jalasoft, where she is leading a transformation that goes far beyond revenue growth. Under her leadership, Jalasoft is scaling its mission to connect exceptional engineering talent from underserved communities across Latin America with companies in need of their expertise.
At Jalasoft, Celeste has championed a disciplined, data-driven growth engine. She is also forging strategic partnerships that empower organizations to access top-tier engineering talent at scale. Her work demonstrates that business performance and social impact can, and should, advance hand in hand.
Passionate about creating opportunities where talent meets purpose, Celeste continues to redefine how companies think about growth, nearshore partnerships, and the power of education-driven social change.
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