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Business Expenses
Q: I am getting ready to do my taxes for last year and not sure how to treat stuff I bought for my business like my laptop, printer, and office furniture. What line on my business tax return do I include these expenses?
A: The costs associated with the new equipment and furniture will certainly provide a tax deduction to the extent the items are used in the ordinary course of business. However, unlike many other expenses these items are not direct expenses to be included on a particular line of your Schedule C, Profit or Loss from Business. The items you mentioned are considered capital assets which basically mean they will typically last your business more than just one year and therefore must be capitalized. The total cost of the business assets will still generate a full deduction over time but must be allocated over the expected useful life of each asset recognizing a portion of the expense for each year for which there is a benefit.
The yearly recognition of that expense is commonly called depreciation and will be included on IRS Form 4562, Depreciation and Amortization.
You can download a copy of the form along with instructions directly from the IRS website at www.IRS.gov. The IRS also has a free publication that you can download to help with the detail called IRS Publication 946, How to Depreciate Property.
Perhaps the best news is that for most small businesses there are a number of depreciation options that can speed up this process so that up to 100% of the cost of each item will still show up on the first tax return. The benefit here is that the total deduction can be accelerated reducing your taxes now rather than having to wait several years for the full benefit. The Section 179 deduction will allow for, in effect, 100% depreciation in the first year for most property and can be very beneficial. There are also bonus depreciation options that can also increase the amount that can be included in the year new property is acquired.
The key point is that capital assets such as those that you mentioned, computers, printers, office furniture, etc. require a little more paperwork and a little more effort before the full tax benefit shows up on your tax return. Take a few minutes to read through the IRS forms and publications and make sure to take advantage of the accelerated options that are available in your specific situation.
As always, don’t forget that you are not alone. Bookmark our website at NASE.org as well as the IRS website at IRS.gov you will always be able to find the help you need.