instrument tax deduction
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bigboymusic
- 3 valves
- Posts: 383
- Joined: Fri Mar 19, 2004 7:54 am
- Location: Independence, MO
instrument tax deduction
Can you deduct part or all of a horn purchase if it is used in professional situations? Question from a tax-stupid tuba friend....
Paul Weissenborn
St. Joseph Symphony Orchestra (MO)
Spirit of Independence Band
SJSO Quintet
Alex 163 CC
YEB 321S
St. Joseph Symphony Orchestra (MO)
Spirit of Independence Band
SJSO Quintet
Alex 163 CC
YEB 321S
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Dan Schultz
- TubaTinker
- Posts: 10427
- Joined: Thu Mar 18, 2004 10:46 pm
- Location: Newburgh, Indiana
- Contact:
Re: instrument tax deduction
Sure! But don't forget to report your earnings, too!bigboymusic wrote:Can you deduct part or all of a horn purchase if it is used in professional situations? Question from a tax-stupid tuba friend....
Dan Schultz
"The Village Tinker"
http://www.thevillagetinker.com" target="_blank
Current 'stable'... Rudolf Meinl 5/4, Marzan (by Willson) euph, King 2341, Alphorn, and other strange stuff.
"The Village Tinker"
http://www.thevillagetinker.com" target="_blank
Current 'stable'... Rudolf Meinl 5/4, Marzan (by Willson) euph, King 2341, Alphorn, and other strange stuff.
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Rick Denney
- Resident Genius
- Posts: 6650
- Joined: Mon Mar 22, 2004 1:18 am
- Contact:
Re: instrument tax deduction
There are three kinds of things you can buy for a business. The first is raw material to be used to make the stuff you sell. That category is pretty small for tuba players, heh, heh.
Then, there are expendables, the things you use up in the normal course of business, and expect to pay for as you use them.
Finally, there are capital purchases, which are durable items that you buy to increase your commercial capability. Examples include major tools, computers, cars, property,..., and tubas.
The first two categories of items are shown as expenses on your Schedule C, and are shown as expenses on your revenue and expenses financial reports. They are direct expenses because you use them up and they lose all their value as you do so. The difference between revenue and expenses is, roughly, gross profit, and gross profit is what you pay taxes on.
You can't generally consider capital items as direct expenses, because they still have value at the end of the year, and maintain value through continued use.
But the capital items that you buy do impose routine costs on your business. For one, they depreciate in value, and that depreciation can be considered an expense. If you borrow money to buy them, then the interest you pay is an expense--once paid, it's gone forever. Thus, in general, you can include the depreciation of capital purchases, plus any interest paid to borrow money to buy them, as expenses.
Things that people buy for reasons other than business are not considered capital purchases. They are considered either investments, or toys. Investments are subject to gains and losses in their capital value, and when you sell them, your pay taxes (or deduct taxes) based on those gains (or losses). How much tax you pay depends on how long you held the investment, but that's not relevant here. Toys are toys, and you can't deduct any expense associated with toys.
Thus, only the business portion of a capital item can be considered a business expense. If you use your tuba for community band 50% of the time and for paid gigs (or legitimate business uses even if unpaid) for 50%, then you can only deduct 50% of the depreciation. Unless you use your tuba ONLY for commercial uses (this includes preparation and practice, of course), you will have to keep track of those uses in order to be able to calculate your business use.
All of that is standard accounting stuff, about which you can read in any accounting book.
When it comes to taxes, there are some additional rules and exceptions. One is that the depreciation must conform to a reasonable approach that is consistently applied thorough the life of the instrument. Maybe that's a straight-line depreciation over 10 years--I don't know. That's where you need specific advice from a tax accountant.
You may also be able to deduct the entire cost using Section 179 provisions. Section 179 makes it possible to claim the full depreciation for small capital purchases in the first year. It's been a LONG time since I read anything about Section 179, so, again, you need to consult a tax accountant to find out how much of that applies, assuming it still exists.
Finally, there are charitable uses. The expenses associated with capital items bought for use in tax-exempt charitable organizations can be deducted as a charitable contribution. I do all my playing with a community band that is a 501(c)3 tax-exempt charitable organization. Thus, I can deduct my out-of-pocket expenses for my participation in that group. For example, I deduct mileage for driving to and from the activities of that group (at a "cost" rate of 11 cents a mile, according to the tax code). I could, if I wished, also deduct the portion of my instrument expenses for my involvement with that group. I don't do this mostly because keeping up with the required records is too much of a pain. Plus, I have an issue with taking a deduction for depreciation for something that doesn't depreciate, because if I ever sell it, I'm supposed to report the sales prices above its depreciated basis as a capital gain. I would rather just not mess with it.
So, in summary: If you buy a tuba for professional use and use it only for that, then you can depreciate the instrument according to what the IRS considers to be an acceptable rate, and claim that depreciation as an expense. You will probably have to set yourself up as a business and include a Schedule C with your tax return to claim it. If you buy it for use as a toy, you can't deduct anything. If you buy it for charitable purposes, you can claim a deduction for charitable contributions for your related out-of-pocket expenses, including depreciation. If you use it for more than one of these purposes in combination, you have to keep track of the percentage of use for each purpose and then that percentage of your expenses can be applied to each situation.
That should give you some background so that you don't eat up too much expensive accountant time.
Rick "who has always done his own business accounting" Denney
Then, there are expendables, the things you use up in the normal course of business, and expect to pay for as you use them.
Finally, there are capital purchases, which are durable items that you buy to increase your commercial capability. Examples include major tools, computers, cars, property,..., and tubas.
The first two categories of items are shown as expenses on your Schedule C, and are shown as expenses on your revenue and expenses financial reports. They are direct expenses because you use them up and they lose all their value as you do so. The difference between revenue and expenses is, roughly, gross profit, and gross profit is what you pay taxes on.
You can't generally consider capital items as direct expenses, because they still have value at the end of the year, and maintain value through continued use.
But the capital items that you buy do impose routine costs on your business. For one, they depreciate in value, and that depreciation can be considered an expense. If you borrow money to buy them, then the interest you pay is an expense--once paid, it's gone forever. Thus, in general, you can include the depreciation of capital purchases, plus any interest paid to borrow money to buy them, as expenses.
Things that people buy for reasons other than business are not considered capital purchases. They are considered either investments, or toys. Investments are subject to gains and losses in their capital value, and when you sell them, your pay taxes (or deduct taxes) based on those gains (or losses). How much tax you pay depends on how long you held the investment, but that's not relevant here. Toys are toys, and you can't deduct any expense associated with toys.
Thus, only the business portion of a capital item can be considered a business expense. If you use your tuba for community band 50% of the time and for paid gigs (or legitimate business uses even if unpaid) for 50%, then you can only deduct 50% of the depreciation. Unless you use your tuba ONLY for commercial uses (this includes preparation and practice, of course), you will have to keep track of those uses in order to be able to calculate your business use.
All of that is standard accounting stuff, about which you can read in any accounting book.
When it comes to taxes, there are some additional rules and exceptions. One is that the depreciation must conform to a reasonable approach that is consistently applied thorough the life of the instrument. Maybe that's a straight-line depreciation over 10 years--I don't know. That's where you need specific advice from a tax accountant.
You may also be able to deduct the entire cost using Section 179 provisions. Section 179 makes it possible to claim the full depreciation for small capital purchases in the first year. It's been a LONG time since I read anything about Section 179, so, again, you need to consult a tax accountant to find out how much of that applies, assuming it still exists.
Finally, there are charitable uses. The expenses associated with capital items bought for use in tax-exempt charitable organizations can be deducted as a charitable contribution. I do all my playing with a community band that is a 501(c)3 tax-exempt charitable organization. Thus, I can deduct my out-of-pocket expenses for my participation in that group. For example, I deduct mileage for driving to and from the activities of that group (at a "cost" rate of 11 cents a mile, according to the tax code). I could, if I wished, also deduct the portion of my instrument expenses for my involvement with that group. I don't do this mostly because keeping up with the required records is too much of a pain. Plus, I have an issue with taking a deduction for depreciation for something that doesn't depreciate, because if I ever sell it, I'm supposed to report the sales prices above its depreciated basis as a capital gain. I would rather just not mess with it.
So, in summary: If you buy a tuba for professional use and use it only for that, then you can depreciate the instrument according to what the IRS considers to be an acceptable rate, and claim that depreciation as an expense. You will probably have to set yourself up as a business and include a Schedule C with your tax return to claim it. If you buy it for use as a toy, you can't deduct anything. If you buy it for charitable purposes, you can claim a deduction for charitable contributions for your related out-of-pocket expenses, including depreciation. If you use it for more than one of these purposes in combination, you have to keep track of the percentage of use for each purpose and then that percentage of your expenses can be applied to each situation.
That should give you some background so that you don't eat up too much expensive accountant time.
Rick "who has always done his own business accounting" Denney
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tofu
- 5 valves
- Posts: 1998
- Joined: Sun Mar 21, 2004 11:59 pm
- Location: One toke over the line...
Re: instrument tax deduction
Let us know how that works out with the IRS. I'm sure they have never seen such a well thought out and clever scheme!bloke wrote:Wade,
You and I need to sell each other our tubas for $20K and then sell them back to each other for another $20K...
We'd each have a $40K tax deduction.
Anybody who decides to declare all or part of their horn as a business item should keep in mind that many homeowners policies will only cover your horn if it is not being used for pay. So you are going to want to make sure you have insurance that covers your horn.
Unless you are a pro making your living with your horn I'm not sure it is worth the effort to get clever with your taxes. I would think this is one of those areas that throws up automatic red flags with the IRS like home offices - inviting close scrutiny of your return. Even if you have nothing to hide a full blown audit is nothing anyone willingly wants to go through.
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sloan
- On Ice
- Posts: 1827
- Joined: Thu Mar 18, 2004 10:34 pm
- Location: Nutley, NJ
Re: instrument tax deduction
Are there community bands in prison?bloke wrote:Wade,
You and I need to sell each other our tubas for $20K and then sell them back to each other for another $20K...
We'd each have a $40K tax deduction.
Kenneth Sloan
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Mcordon1
- bugler
- Posts: 169
- Joined: Wed Apr 08, 2009 1:30 am
- Location: Boston, MA
Re: instrument tax deduction
dgpretzel wrote:sloan wrote:Are there community bands in prison?bloke wrote:Wade,
You and I need to sell each other our tubas for $20K and then sell them back to each other for another $20K...
We'd each have a $40K tax deduction.
http://www.correct.state.ak.us/correcti ... ra_088.pdf
DG
~Boston, MA