Most business managers recognize the need to replace selected computers every few years. Despite the cost, the upgraded technology is often one of the keys to remaining competitive. Although a tax deduction is available for computer equipment, the deduction is not always as straightforward as that for other asset types.
As with most other business assets, the cost of office computers is recovered through a tax deduction for depreciation. The cost of computers and peripheral computer equipment is normally deducted over a depreciation period of five years. However, you may be able to deduct the entire cost of new computer equipment in the year of acquisition.
Understand Section 179 deduction
Section 179 of the Internal Revenue Code allows a deduction for up to $500,000 of the cost of acquired business assets. The Section 179 deduction is taken up front, so regular depreciation is available only on any remaining asset cost. In many instances, the Section 179 deduction limit exceeds the cost of acquired assets.
Keeping track of annual depreciation requires a certain amount of accounting work each year. By deducting the entire cost of computer equipment in one year, your ongoing accounting burden is lessened in upcoming years. The Section 179 deduction is optional. If the higher write-off is not useful in the year of acquisition, you may deduct the cost over the regular 5-year period.
Consider home-based business computers
An additional consideration comes into play if you are replacing computer equipment in a home-based business. Because some types of assets lend themselves to personal use, the IRS classifies certain items as listed property. Automobiles and computers are considered listed property. As a result, you must determine if a home-based business computer is used at all for personal use.
If a listed property is partially used for personal use, only the business use portion is deductible. If the percentage of business use is not more than 50 percent, the Section 179 deduction is not available. To receive the full available deduction for a home-based business computer, ensure that a separate computer is available for all personal use.
Fill Out Form 4562
Listed property derives its name because it must be listed separately on IRS Form 4562 for each year it is deducted. In contrast, most other asset categories are reported separately on Form 4562 only for their first year of service. In subsequent years, the total depreciation deduction for non-listed property is entered on a single line of Form 4562. Contact services like Andrea Lawrence Tax Accountant Inc for more information on business tax services.
