@TaraTa wrote:
Also- if we purchased a product for a video- but continue to use the product (rarely- but did not sell it) do we expense a portion of it and how do we tell what portion to expense?
Please seek professional advice.
The complicated answer is that when you buy an asset for your business (an asset is technically any durable item with an expected lifespan more than 1 year) you can depreciate it during the time it is used for business, then if you convert it to business use, you stop taking depreciation. For example, if a $1000 bicycle has an depreciable lifespan of 5 years and you use it in business for one month before converting it to personal use, you would be entitled to a deduction of $16 for depreciation.
This gets more complicated because there is a tax procedure to make taxes simpler for small businesses that allow you to expense most assets that cost less than $2500. In this case, if you expense the bike, its cost basis is now zero, so it carries that zero cost basis when converted to personal use. That then means that if you ever sell it, the money you get is taxable income (called depreciation recapture). But you could conceivably ride the bike until it wears out and then throw it away, and you technically never paid for it since you deducted the cost from your business income. While this fits the letter of the regulations, you may run into a problem with the IRS definition of business expenses. A business expense is whatever is "ordinary and necessary" for the business. I would be worried that buying expensive items and converting them to personal use after a brief business use period would not be "ordinary and necessary". The ordinary and necessary expense of reviewing an item might be seen as the cost of operating that item for the review period, not the cost of permanently owning the item. Businesses are supposed to operate in a businesslike manner which includes maximizing business profit. If a bakery bought 10 professional ovens to test them and kept one in use, they wouldn't leave the other 9 gather dust in a corner, they would sell them to recover their cost and maximize their business profit. Buying full price products, expensing the entire cost, and then converting them to personal use is a way of minimizing business profit to enrich your personal life.
I honestly can't say what would happen in an audit. It feels wrong, but might be legally correct (as long as you report taxable income whenever you sell the items, new or used). I would recommend professional advice.
