Posted on 04/08/2022 1:01:14 PM PDT by Cedar
Doing taxes for a relative, first year small business at home. Needing to know where to put entire purchase cost of (used) computer and software for the business.
He purchased the computer from his previous employer; this is the computer he used while employed with employer. So according to IRS, it cannot be put under Bonus Depreciation since he himself used it before:
"The used property requirement is met if the acquisition of the used property by the taxpayer meets the following five requirements: (a) the property was not used by the taxpayer or a predecessor at any time prior to such acquisition..."
So, does that mean the only other option to list the entire cost of the computer is by using Section 179 and filling out Form 4562? Or can I list the computer and software under Schedule C, Part V, Other Expenses (please let it be so!!!)?
This is for tax year 2021. I'm wanting to take the entire cost (and hoping I can avoid Form 4562).
Miscellaneous business expenses...............
You mean Part V Other Expenses on page 2 of Schedule C?
A de minimis safe harbor election
Note: Effective for taxable years beginning on or after January 1, 2016, the Internal Revenue Service in Notice 2015-82 PDF increased the de minimis safe harbor threshold from $500 to $2500 per invoice or item for taxpayers without applicable financial statements. In addition, the IRS will provide audit protection to eligible businesses by not challenging the use of the $2,500 threshold for tax years ending before January 1, 2016 if the taxpayer otherwise satisfies the requirements of Treasury Regulation § 1.263(a)-1(f)(1)(ii).
https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations
I forgot about safe harbor,,had read briefly on that yesterday.
So, would I list the computer & software under Part V, Other Expenses, and then attach the statement described below?
You should attach a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” to the timely filed original federal tax return including extensions for the taxable year in which the de minimis amounts are paid. The statement should include your name, address, and Taxpayer Identification Number, as well as a statement that you are making the de minimis safe harbor election.
Used employer equipment does not constitute used by him. Used by him would be if it were his own personal property from the get go. It was owned (and therefore used) by his employer, which is a different entity. It doesn’t matter that he happened to be the employee that was touching the keyboard.
p.s., if you look closely, you wind up losing your 179 depreciation under AMT anyway in general, so if he’s paying that, not worth it to fill out the form. Use straight line if you going to depreciate, unless it’s a really big ticket item and then check to see how much you’re losing under AMT anyway.
Thanks for that clarification on “used” equipment,,great to know.
He’s past retirement age, so this is a small business. The AMT will not apply.
So, I guess there are two options...179 depreciation or the safe harbor. Perhaps safe harbor would be less complicated than Form 4562, at least for me since I’m a real beginner on this?
I’m sorry. I meant to say the two options are Bonus Depreciation or Safe Harbor. Think I’ve spent too much time on this today, need a break...ha.
1. I advise you to get a CPA to do business taxes rather that ask the question on FR.
2. In any event, would argue that the previous owner of the equipment was the “user” and it doesn’t matter who operated the equipment. It could have been the current owner/taxpayer, the candlestick maker or a raccoon. Take the Section 179 deduction if otherwise qualified.
Ahhh. An IRS question I like these.
Ask 7 different tax experts and get 9 different answers. Six of which which will be correct.
The deduction should not exceed the FMV of the equipment when placed in service.
Call a professional. Don’t get tax advice from total strangers on the internet. And don’t clutter up a political forum with requests for help from total strangers.
I took a 179 deduction on a $500 iPad and my tax software gave my a $49,000 deduction. I’m pretty sure it was supposed to be $49.00 but instead of a period after the 49 there was a comma.
I just deleted the entry.
There are professionals on Free Republic. At least one has responded.
Don’t clutter up the forum with your opinions on what should be posted here.
Sec 179 the computer and be done with it. Jusr remember if he sells it in the future to recapure some of the deduction.
I’d say the normal way to do it is to take the depreciation route as it’s an asset. Either way is probably fine.
Also keep in mind, some states/jurisdictions tax business property so that too can eat into any depreciation benefit.
Ultimately, if you’re only talking nickels as an end result, not worth mentioning it all all.
That should have been a 5 year sched so would have guessed $100 if the sw was calcing year 1.
Sounds like a QBI deduction should be in the works too. If so they can thank President Trump.
Thank you all for your comments and help with this matter. I greatly appreciate your time and suggestions on what to do.
And yes, P-Marlowe, as you said FR has many professionals here. And I have off and on through the years turned to the people here for help/vanity questions. Thanks for taking up for me!
Actually I only owned it for a month. It should have been around $49. It wasn’t worth the hassle. I’ll write the whole thing off next year.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.