For my business tax return, I'd like to deduct some of the costs of my new PC based on the percent I use it for my business vs. personal. I've read that I can do this and I just need to enter the percentage I use it for my business into turbo tax. However, do I need to somehow document how much I use it for business in case I'm audited? If so, how would someone do this? Do you really need to log how many hours you use it for personal vs. business? If so, I feel I'll spend more money in time spent logging hours than I'd save writing it off. Thanks for the input.
I also have the same question for my cell phone.
BTW - I did find this article that said "Effective 2018, there are no recordkeeping requirements for any business use of computers." Meanwhile, I've read many things that say I do need to keep records for my cell phone. So looking for some supporting input to what the real answer is.
Thanks for the help!
a computer can be listed property if its use does meet this requirement contained in form 4562 instructions (the form where depreciation is detailed)
2. Any computer or peripheral equipment used exclusively at a regular business establishment and owned or leased by the person operating the establishment
if it doesn't meet the requirement it is listed property that is supposed to be included I part V of 4562
in addition, there is a question in part V on 24a that must be answered.
i have provided a link to 4562 instructions.
if it's listed property read the instructions starting on page 11. i think what you are referring to no longer applies. from page 12:
For other listed property (such as
computers placed in service before
2018 or video equipment), allocate the
use based on the most appropriate unit
of time the property is actually used
(rather than merely being available for
the IRS gives no further guidance.
Thanks for your response Hackitoff. I looked through the instructions you referred me to and unfortunately I'm having trouble seeing how this addresses my question of "how detailed of records I need to keep relative to cell phones and PC usage (personal vs. Business usage)." However I may be missing something so let me know if I am. Thanks for your help.
If audited, you must have a “reasonable basis“ to show the auditor how you determined the percentage of business use and the percentage of business expense. I do not know of any specific guidance on what constitutes a “reasonable basis.“
I am not aware of any tax document that says that you don’t need to provide any kind of proof. In fact, I was reading a recent tax court case for other reasons, that concerned two professors who, among other things, had deducted their computer costs and Internet costs because they used them for writing a book. The tax court ruled that since they offered no proof or justification of business use, the deduction was disallowed. The tax court did not offer any opinion on what would have constituted reasonable justification, only that since the professors offered no justification at all, no deduction was allowed.
The other concept that is clearly in tax guidance is that your records must be contemporaneous. That is, your records must have been completed close enough in time to the event being recorded that your memory is reasonably accurate. (You can’t, for example, reconstruct your business mileage log in April for the previous tax year from memory.)
There may be an app that you can use to track your computer use. Certainly, when my wife at the time worked for a large accounting firm, there was a program on her computer that she used to track which clients she worked for at which hours of each day. Or maybe a memo to your self written once a month with an approximation would be good enough. I just don’t know. It would depend on the goodwill of the auditor, and maybe on audit manuals that are internal to the IRS. If you want more specific advice, you will have to see a professional tax preparer.
Thanks. That information is useful. However it's a shame that it is so difficult to get answers to these questions. The guidance should be clear not ambiguous. All I want to do is fairly deduct my true business expenses and not break the law. As a new business owner, it is astonishing how hard the IRS makes it to accomplish that. I understand I can pay a CPA a lot of money to tell me this, but quite frankly I shouldn't have to if I'm willing to do some research using the documentation provided by the IRS. However upon reading the documentation (depreciation and amortization instructions an associated publications) as well as asking people such as yourself for help, I can't find answers to this anywhere. The IRS shouldn't make this so ambiguous. How do they expect people to start businesses and stimulate the economy if they're going to put barriers like this and the way. Sorry to rant, but just wanted to share my thoughts in case anyone has any feedback or suggestions for me.
The bottom line is that the law presumes that all income is taxable, unless you prove otherwise. “Tax deductions are matters of legislative grace.”
I don’t know if I can think of any other area except for business use of a personal vehicle where the IRS has created black letter rules to help taxpayers allocate a shared personal and business expense.
Most taxpayers are not audited. I am not giving legal advice, but one possible route would be to make your best guess, and then if audited, understand that you immediately concede that particular issue and focus on other issues where you have better proof.
I'd like to deduct some of the costs of my new PC based on the percent I use it for my business vs. personal.
For a mixed use asset such as a computer or cellphone which costs less than $1000 by far, the "savings" will be negligible if there's any savings at all. The time and effort put into it, is not worth the outcome.
It makes significant more sense to go buy a computer and a cellphone that is specifically, explicitly, and "ONLY" for the business. Those items happen to qualify under safe harbor to be flat out deducted as a business expense in the year purchased, since they cost less than $2,500. Heck, you could even throw in a printer and still be well under $2,500.