Question for you "bean counters"

Half way thru this year my pt gig went from company employee to private contractor. I'm not looking at a whole lot of income just a pt job. I use Turbo Tax,do you guys think I should buy a new home computer so I can deduct it? I honestly dont use it in the work often mostly a cell phone and gps. Please keep it simple,I'm a blue collar guy.
Thanks.I dont need a new phone or gps,I could use a new computer.

 

IMHO, Unless you would JUST use it for work, it might not be worth it. The IRS is "persnickety" on anything home office related. You couldn't have anything "personal" on that computer, otherwise you would have to deduct that portion that the computer was in use for "personal items".

 

Agree with this 100%.The IRS focuses on things like this so if you do it I would do some research to make sure you meet all of the requirements to be able to deduct it and they are pretty tough to meet. Keep in mind to that a deduction is different from a tax credit. A deduction only saves you a percentage of the expense, based on your tax rate. So if you buy a computer for $1,000 and your tax rate is 20% you will save $200 in taxes but you are still out the $1,000 for the computer, or $800 net of the tax benefit. So you will not be getting a new computer for free....just at a discount.

 

As a business owner I can tell you when one starts deducting home expenses it's a red flag and you're much more likely to get audited..the upside is the IRS doesn't seem to be quite as zealous in the past but you're still risking a lot for a small write-off...talk to your accountant first

 

Thanks guys,it's small potatoes ,Turbo Tax has a feature where it raises a red flag if something doesnt smell right. I dont need problems with the IRS especially over a few hundred bucks. I'm on the road so I dont think a gps or phone would be pushing it . No,I'm not with Uber.

 

Wow, I'm surprised a group of people predisposed to gambling in vegas are so risk averse when it comes to their taxes.

I'm no expert but we have two home businesses and my wife expenses a laptop every couple of years, because they are cheap and don't last very long. We have a complicated return with a lot of deductions and have never been audited I think if you buy a basic $400 laptop and not some fancy gaming machine, almost any business nowadays could reasonably be assumed to use a computer to use it for turbotax, banking, paying bills, printing out invoices, etc and I don't see how this could be considered a red flag, except maybe for a child's lemonade stand (who probably didn't even make enough to pay taxes anyway).

Also the IRS has to balance the cost of auditing (which isn't free) against the risk that they won't collect anything from you. If your $400 laptop is used 50% for personal use, the deductible amount is 200 x your tax rate, vs 400 x your tax rate if you declare 100% business use. So if your tax rate is 33% you are looking at evading $66 in taxes. If you are amortizing the cost over the life of the laptop it would be even less. Also I don't think audits are usually done in person where they would come and inspect your property (according to my accountant). I can't imagine the IRS would come after you for a computer - and it would be hard for them to prove what the percentage for personal use should be anyway. That is almost certainly less than it would cost them to audit you and they have MUCH bigger fish to fry. That said, if you are doing something else that is likely to be an actual red flag - such as deducting some large expense two different ways or taking a tax credit you aren't entitled to, or deducting to the point of having much less income than other people who have similar businesses - the chance of being audited is higher.

If you have property and can demonstrate that you are using it in a business capacity, and have claimed the legitimate cost, according to my accountant it is fully deductible. Even if it weren't, I imagine the laptop is small potatoes compared to the cost of your auto mileage, insurance, cell phone service, space in your home that you use for the business and the business' share of home utility expenses, and the many other expenses you incur and can also deduct.

Finally, remember that if you are audited and can document that your expenses are legitimate, you won't necessarily owe money to the IRS. That said, I'm sure an audit is no fun and you may have to hire an accountant to help you defend yourself. And if you do owe money, you will owe the difference plus interest.
Here is a good reference:
https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits

 

First, I can assure you that CPA's do not have the reputation of living on the edge with respect to risk. Second, home office deductions are a red flag, but one red flag does not automatically trigger an audit. There is no one right answer, but like much of the IRS code it depends on facts and circumstances. There is a reason that we call every new major tax code change that comes out - "The Accountants Full Employment Act".

 

Isn't one of the first thresholds/red flags in any of this whether it really is work, as opposed to essentially a hobby?

 

Yes. For a schedule C business the IRS will look at the purpose of the business (the NAICS number) to determine if it is a business or hobby. Known hobbies are race horses, car racing, boat charters etc. They like to see a profit in two of the last five years. A business stands a better chance of passing scrutiny if it is run like a business--has it's own phone number, website, advertising, bank account, etc. They also look at the proprietor's other income. If they have a full time job with a w-2 and they have a charter business that loses money every year, they know the taxpayer is using the "business" to shelter w-2 income. We always save pigs get fat, hogs get slaughtered. I review hundreds of returns each year and I know when I see a bogus schedule C or schedule E rental property.

 

Big difference in my opinion. To me it is more of an ethical thing. When I gamble I win or lose and it is all on the up and up and legal and the government is not going to care (other than failure to report winnings of course) and gambling isn't my job nor does it have anything to do with my CPA license. The way I read you comment (and I may be wrong) is that by gambling on taxes means taking highly questionable deductions. If someone wants to do that, well that is their decision. The people here that appear to know what they are talking about have given the "by the book" answer. A home office deduction is hard to defend in the unlikely event of an IRS audit. That is not being risk averse, simply answering the OP's question.

So yes count me in the predisposed to gambling group. But to me doing the right thing on your taxes is not being risk averse...it is...doing the right thing on your taxes.

 

Fair enough. I'm sure you know better than I would.

 

No way should you attempt to do that. And besides, do you truly understand deductions?
Say it is a $500 computer. That means you would not pay taxes on that $500, not that you can save $500.

Also, this assume you itemize. If you don't itemize, it does not matter anyways.

Congrats on using Turbotax. I find it very sad how many people pay others to do their taxes every year.

 

This isn't directed at anyone here at all. A lot of people don't understand how deductions work and what the real benefit is. I had a guy tell me one time that he "couldn't afford to pay off his mortgage because of the loss of the tax deduction". Ugh.

 

Yea, deductions and writeoffs. Biggest misunderstanding in America today.

So tired of people saying a company or themselves can just "write it off". Wrong, you still have to SPEND the money.

Another insane,illogical comment - if I make any more money, it will push into the next tax brackets and will end up with less money than I have now. Dumb, dumb, dumb.

 

lol. I am no expert, but even I laugh at those type of insane remarks.

 

Thanks for all the info.