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Level 7

How do I deduct the purchase of computer parts to build business computers?

Hi,

 

I purchased computer parts to build and use in my business. Can I expense the parts as I purchase them or would I have to capitalize and depreciate each computer built with the total cost being the parts?

 

Thank you.

2 Replies
Level 10

How do I deduct the purchase of computer parts to build business computers?

deminimis safe harbor election can be made for up to $2,500 per invoice or item......and there is the section 179 deduction if there is enough income and also bonus depreciation

Level 19

How do I deduct the purchase of computer parts to build business computers?

here's from IRS schedule C instructions

Generally, you can use the cash method,
an accrual method, or any other method
permitted by the Internal Revenue Code.
In all cases, the method used must clearly reflect income. Unless you are a small
business taxpayer, you must use an accrual method for
sales and purchases of inventory items

 

Small business taxpayer. You qualify as a small business taxpayer if you (a)

have average annual gross receipts of $25 million or less for the 3 prior tax
years and (b) are not a tax shelter (as defined in section 448(d)(3)).
If your business has not been in existence for all of the 3 tax-year period
used in figuring average gross receipts,
base your average on the period it has
existed, and if your business has a predecessor entity, include the gross receipts
of the predecessor entity from the 3
tax-year period when figuring average
gross receipts. If your business (or predecessor entity) had short taxable years
for any of the 3 tax-year period, annualize your business' gross receipts for the
short tax years that are part of the 3
tax-year period.
See Pub. 538 for more information.
Treating inventory as non-incidental
material or supplies. If you account for
inventories as materials and supplies
that are not incidental, you deduct the
amounts paid to acquire or produce the
inventoriable items treated as materials
and supplies in the year in which they
are first used or consumed in your operations.
Financial accounting treatment of

 

 

 

 

so if you don't reach the $25 million sales  threshhold, you can use the cash basis for all your expense. so yes you can expense the parts purchase 

 

in any event  you could not depreciate the computers you build (unless after building you rent or lease them  otherwise they are inventory. it just that the tax laws allow small taxpayers to expense inventory purchases 

 

 

some additional advice.  if you are going to use a credit card to pay for some of your business expenses, it is best to get a separate card used solely for your business.    and be sure to keep the supporting invoices.    this will save you many headaches should the IRS audit your return.   also when you use a credit card,  that is considered payment cash-basis tax purposes.      the reason per the iRS is that the purchase has been paid for (even though it's actually the cc company that is paying the bill)  and now you owe someone else  - namely the cc company