From: utzoo!decvax!ucbvax!CAD:tektronix!tekmdp!mikem Newsgroups: net.taxes Title: Re: Deduction questions... Article-I.D.: tekmdp.1688 Posted: Tue Jan 18 11:21:28 1983 Received: Fri Jan 21 00:55:05 1983 I am not a lawyer or tax accountant, but you may take the following information for what it is worth. This came from "Tax Guide for Engineers", mentioned on these pages previously... 1) The educational expense is a risky one at best, since if an employer wanted you to learn about computers, he should provide one. If you think you might have need for computers in the future, you are really preparing yourself for a new job, and the deduction is not allowed. 2) The difference in times depends on what the application of the computer is. If it a business related expense, you are allowed to depreciate it over three years. If it is an expense related to investments, the computer must be depreciated over five years. In both cases, you also get an investment tax credit (which subtracts from taxes due) of 6% of the basis. If you intend to use the computer for personal use as well, you must adjust the basis; for example if you purchased a computer for $5000, and used it 90% for business/investments, and 10% for fun and games, your basis for depreciation and tax credits must be multiplied by 0.9. The 3 year depreciation schedule is also applicable to R&D expenses. You should play close attention to how much you really use a computer for fun and games; I already have an old computer (no I didn't worry about the depreciation stuff at that time) that I use exclusively for managing my investments. I have plenty of game programs, but haven't used them in years. 3) The option of a $5000 expense deduction is new this year(for 1982 filing); I am not sure if it will be around in 1983. This applies only for usage of the computer in a business environment. You may expense (essentially depreciate in one year) up to $5000 worth of capital goods. You are not allowed an investment tax credit though. Now for the question, what is the best way to go? It all depends on your tax bracket, your other tax deductions, etc. The best way to figure it out, is to estimate your income during the depreciation years, and determine what provides the best tax savings for you, by calculating tax liability each way. Also remember that you only get the tax credit when you depreciate the computer over 3 or 5 years. The book mentioned above, also explains how to get private tax rulings from the IRS in writing. Remember, that anything the IRS tells you over the phone is not binding. Mike Mihalik (just another person wanting to buy a computer, and write it off)