Purchasing a New Computer Annually for Tax Purposes

[MICHAELSD]

As a self-employed taxpayer, it seems that the tax deductions for office expenses such as a computer make it feasible and desireable to upgrade equipment annually. (Despite how Apple has barely made a MacBook Pro upgrade desirable since 2012... I wouldn't consider the current model an upgrade unless I purchase the $2499 model but even that's minimal.) Even though I probably would not upgrade annually due to lack of interest, would this be considered a normal expense if one were to deduct a new computer every year? Curious at this point.

Same question regarding the iPhone although I already upgrade that every year and have established with a tax professional that the cost of purchase is deductible.

 

[maflynn]

If the tax laws are such that purchasing a computer improves your situation for taxes, then yeah.

 

[velocityg4]

Never thought about that. But yea I suppose it is the most advantageous tax wise to replace each year. Depending on the depreciation method you use. Although you have to factor in all the time lost switching to a new machine, wiping the old one and selling it.

 

[monokakata]

It's not that simple. When I ran a small business (a subchapter S corp) I would use Section 179 (see link) for some things, but not for others.

Basically, you can write off that yearly new computer only under certain circumstances.

http://www.nolo.com/legal-encyclopedia/section-179-what-every-business-owner-needs-know.html

The IRS has fairly long depreciation schedules for computing equipment. At the moment, I believe it's 5 years -- ridiculous, but that's the regulation.

 

[ApfelKuchen]

Lots of different circumstances, lots of different possible answers.

Section 179 is good for something like $10,000 worth of equipment purchases annually. You buy bigger stuff, you have to use other forms of depreciation. The 5-year depreciation of computers is generally not needed for PC purchases by small businesses. But only your CPA will know for sure.

IRS is not going to notice or care that you buy and write-off one new computer every year. If you were a one-person business with an office in a commercial building, plus a home office, you could justify three computers right there - desktops for each office, and a laptop for working in the field. If you add a second employee needing a laptop and desktop - you're up to 5 computers. Time to retire the oldest one!

What they would care about is if you deduct the full price this year under Section 179, sell it for 50% of the purchase price next year, and don't report the proceeds of the sale as income.

Honestly, this is penny-ante stuff to IRS. For those of us for whom a computer is the biggest equipment purchase of the year... Compare that to the Ford F-150 purchased by the class screw-up when he started his lawn care business, or the mom and pop pizzeria with $150,000 worth of kitchen equipment, fire-prevention gear, and a delivery truck. And that's for what we think of as "small business." Ask a banker to define "small business" and it'll be something like a minimum of 50 employees and/or $5 million in annual revenues. Anything less? You ask them for a small business loan and they'll say, "How much home equity do you have?"

 

[Sun Baked]

I always like people that love to spend $10,000 to save $4,000 in taxes, awesome return on cash there.

Almost as good as the "I saved $1,000 on clothes today."

 

[960design]

As a self-employed taxpayer, it seems that the tax deductions for office expenses such as a computer make it feasible and desireable to upgrade equipment annually. (Despite how Apple has barely made a MacBook Pro upgrade desirable since 2012... I wouldn't consider the current model an upgrade unless I purchase the $2499 model but even that's minimal.) Even though I probably would not upgrade annually due to lack of interest, would this be considered a normal expense if one were to deduct a new computer every year? Curious at this point.

Same question regarding the iPhone although I already upgrade that every year and have established with a tax professional that the cost of purchase is deductible.

I get a new MacBook Pro ( best that they have ) every two years and it is a tax deduction. I also purchase many new test computers that are run through the hoops for statistic reporting and evaluation that are also write offs. You'd have to speak with your CPA to find the exact benefit to loss ratio, but even if it is as stated a 60% wash, at least it's a 40% gain.

I give the computers away to recommended K-12 students within the local schools when I've finished testing them. I probably would do better as a non-profit, but oh well.

 

[Macky-Mac]

As a self-employed taxpayer, it seems that the tax deductions for office expenses such as a computer make it feasible and desireable to upgrade equipment annually....

you're still out the full cost of the computer (or the iPhone) every year........you just don't pay an additional amount in income tax on the income you had to make in order to have the money to spend on the computer in the first place

 

[MICHAELSD]

What they would care about is if you deduct the full price this year under Section 179, sell it for 50% of the purchase price next year, and don't report the proceeds of the sale as income.

I've spoken to my CPA and read some documentation and it seems that they allow you to deduct the full price then report it as a capital loss when sold unless you sell it for more than the original purchase price.

 

[bookwormsy]

I've spoken to my CPA and read some documentation and it seems that they allow you to deduct the full price then report it as a capital loss when sold unless you sell it for more than the original purchase price.

What would you end up doing with the old laptop? Let's say you elect to take the Section 179 deduction. If you sell it, you'd have income from sale of business asset. If you keep it for personal use, you'd have to recapture part of the deducted amount based on the MACRs depreciation schedule. Things to keep in mind.

 

[gnasher729]

As a self-employed taxpayer, it seems that the tax deductions for office expenses such as a computer make it feasible and desireable to upgrade equipment annually. (Despite how Apple has barely made a MacBook Pro upgrade desirable since 2012... I wouldn't consider the current model an upgrade unless I purchase the $2499 model but even that's minimal.) Even though I probably would not upgrade annually due to lack of interest, would this be considered a normal expense if one were to deduct a new computer every year? Curious at this point.

Same question regarding the iPhone although I already upgrade that every year and have established with a tax professional that the cost of purchase is deductible.

That question is quite pointless unless you tell us what country you are in.

In the UK, you could buy as many computers or phones as you want and deduct them from tax. However, you would only be able to use them for business use and not for private use, which makes this rather pointless (unless you are a software developer and think you need each model of the iPhone for testing purposes). If you wanted to use any of these devices for private use, you'd have to sell them to yourself, and the payment would increase your profit and your tax liability.

 

[ApfelKuchen]

I've spoken to my CPA and read some documentation and it seems that they allow you to deduct the full price then report it as a capital loss when sold unless you sell it for more than the original purchase price.

Double-check that last part. You can only deduct things once. Whatever you've already deducted (depreciation) on a capital investment adjusts its book value (or cost basis). So, if you've taken a $1000 depreciation deduction on a $1000 computer, the book value is $0. Anything you sell it for would be a profit for tax purposes.

Capital investments (major equipment, shares of stock, buildings and land) don't get deducted when you buy them, you pay taxes on gains or take deductions for losses at the time of sale. The idea behind depreciation is that some kinds of investments wear out over time, so you'll never get back the full investment if you sell it, and you'd have to replace it eventually if you keep it. Rather than make you wait until the day you sell it (or toss it), IRS allows us to deduct that loss in advance, usually a little bit every year. In the case of items that qualify for Section 179, we may be able to deduct the whole loss in the first year.