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)