The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies

URL:  http://boards.fool.com/see-an-accountant-or-download-pub-17-from-15558888.aspx

Subject:  Re: Deductions for a second job Date:  8/14/2001  12:21 AM
Author:  jailleres Number:  53316 of 121585

See an accountant or download Pub 17 from www.irs.gov or get a tax book (e.g. Lasser's) from the library if you're serious about this, because there are lots of other things you can deduct as well but the recordkeeping is important (auto costs, meals, etc.)

As for deducting equipment: First, your business (musician)has to be profitable 2 years out of 5 or the IRS will deem it a hobby and you will owe the taxes back plus interest. You must show that you intend to make a profit. Second, you can deduct the equipment costs up to the amount of your net income (profit, not earnings) in the year you bought them (sec179) but only if you bought them that year. For equipment you bought in previous years, you can deduct the cost over the life of the equipment (ask your accountant) as depreciation. You have to track the depreciation each year. If you depreciate something completely (showing its value as $0 on your books) and then eventually sell the equipment you will owe taxes on the amount you received from the sale. That includes if you take the secion 179 expense (first year deduction) - you will owe the tax back.

To use your example: If your first year profits (not earnings) were $1000 you could use section 179 for $1000, no more. However, you could use depreciation and other expenses such as travel, to create a net loss for your business that year, which would offset other income.


Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us