The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : It’s the Holiday Season, Time to Think About Tax-Deductible Buys
Holiday gift shopping might be your main preoccupation at this time of year, but it’s also time to think about some decidedly less festive acquisitions: computer products that you might be able to deduct from your 1994 taxes.
Not everyone can write off computer-related expenses. But if you’re self-employed, run a business from home or are using the computer for “the convenience of your employer” you may--and I stress may-- qualify for a tax deduction on any equipment and software you buy during the year.
I’m not a tax expert, so I consulted with Daniel Caine, a Boston-based tax lawyer and author of TaxCut, a leading tax-preparation program from Meca Software, a subsidiary of H&R; Block. I also spoke with Orlene Chartain, a Redwood City, Calif., certified public accountant. And it’s always best to check with your own tax professional or the IRS before making any tax-related decisions.
In general, people who run their own businesses--either full- or part-time--have more leeway than those who work for others. If you operate a business from home, you may be able to deduct up to $17,500 for business equipment and software in a single year. (That’s up from $10,000 in 1992.)
To qualify for this “Section 179 expense election,” or so-called rapid write-off, the equipment must be used more than 50% for business purposes, and you can only write off the business portion of its use. For example, if you purchased a $1,000 printer that was used 70% for business and 30% for personal use, you could write off a cost of $700. If you’re married, both spouses together can claim a maximum of $17,500, even if you’re filing a joint return, according to Caine.
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People who work for others face more restrictions on write-offs. To qualify for a deduction, the equipment has to be used “for the convenience of your employer.”
Office workers who buy a computer to finish reports late at night do not qualify, according to Caine. If your employer requires you to operate a computer from home (or on the road), then you may qualify for the rapid write-off, or you may be able to depreciate the equipment over several years--assuming, of course, that the employer doesn’t reimburse you for the expense.
If you qualify for a deduction, you can take it only if you itemize and forgo the standard deduction. You can write off expenses only in excess of 2% of your adjusted gross income. An employee with an AGI of $50,000, for example, cannot deduct the first $1,000 of business expenses. And to qualify for a deduction in 1994, the equipment or software must be purchased and put into service before the end of the year.
Before you go out and spend those tax-deductible dollars, it’s a good idea to take stock of what you have and what you might need. This might be a good time to upgrade your personal computer and add some useful accessories. If you are using Windows or Macintosh and have less than eight megabytes of random access memory, consider adding more, especially if you plan to upgrade to Windows 95 or OS/2 sometime in 1995.
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If your hard disk is as cramped as your hall closet, it might be a good time to add an extra hard drive. On most personal computers, you can add another drive without giving up the one you have. I’m very happy with the 1.08-gigabyte (1,008-megabyte) Western Digital hard disk I bought for about $450.
The IRS would certainly approve of your buying a tape backup system, as long as you use it to back up your business records and other work-related files. I use an Iomega Parallel Port II tape backup drive that plugs into my PC’s printer port. It took me less than 10 minutes to install both the hardware and software, and, best of all, I never had to take my machine apart. The device stores up to 250 megabytes per tape and has a street price of about $320. If you’re willing to take apart your machine, you can get a Colorado Tape Backup system for $165 that connects to your PC’s floppy-drive controller.
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Games and educational programs are not good candidates for write-offs (no matter that surveys show they’re heavily used at the office). But no business user should be without a utility program, such as Norton Utilities for DOS, Windows or Macintosh. This software helps prevent and recover from problems with your hard disk. On more than one occasion it has saved my business records from near-certain oblivion.
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Computer File welcomes your comments. Write to Lawrence J. Magid at magid@latimes.com on the Internet or KPVN58A on Prodigy.
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