I'm confused if the engineering software that I've purchased CAN be considered a Section 179 or not. Also, this software has significant yearly costs (over $2700 per year). So, I have two questions.
Where do I put the initial cost of very expensive, highly advanced, and specialized software, in Turbo Tax? (about $18k in my case)
Where do I put the non- trivial yearly cost of subscription/maintenance of the above software in Turbo Tax? (about $2700 per year in my case)
I use this software daily for my business clients - and could not perform services without this software.
Background: It isn't unusual at all for medium to large (engineering) companies to spend $250k or more for professional engineering software. This is VERY common with engineering firms. Typically, there is also a yearly cost of this software in addition to the initial purchase - usually 15% of the original purchase cost. Again, a non-trivial amount of money that should count as an expense or deduction of some kind.
Personally, I see this as no different than purchasing expensive equipment needed to run a business - in fact, the yearly subscription/maintenance cost IS similar to depreciation since software updates and new versions come out throughout the year. So, in practice, software does become old and costs money over time - I say, in practice there is a depreciation cost associated with professional software.
Again, I am a bit confused when reading Section 179, as well as publication 946 and publication 535 (from the irs.gov site).
If anyone has experience with deducting very expensive software then I'd like to hear from you.
Not sure if robots respond to these posts - but if I am speaking to a human please don't simply regurgitate all the stuff I've read from the irs.gov website. I'm posting here because I HAVE read these articles - yet, remain confused. Example: in Chapter 8 of the irs publication 535 - one of the criteria for software is if, "It is, or has been, readily available for purchase by the general public.". Well, I had to speak to sales person first before purchasing. It wasn't as if I merely added advanced engineering software to my shopping cart and paid for it. So, in that case, I'm not sure if the criteria is met.
Another reason I post is because there HAS to be someone out there that is actually familiar with this scenario being that it is a VERY, VERY common expense with engineering firms. So, please, I ask one more time - don't simply cut and paste the stuff I've already read from the irs.gov site.
For what kind of business did you purchase this software? A single member LLC? Multi-member LLC? S-Corp? C-Corp? Partnership? Something else?
If you are a W-2 employee of the business and purchased the software with your own personal funds for use in your W-2 job, then not a penny is deductible anywhere on the tax return. Effective starting in 2018, W-2 job related expenses (all of them) are no longer deductible.
If the software was purchased for a business that you own, then it's listed/claimed/reported in the Businses Assets section of whatever kind of tax return the business is required to complete. (Sch C? 1120? 1120-S? 1065?)
When entering it as an asset, you'll select "computers...." on the first screen, then "computer software" on the next screen and just continue working it through. Software is depreciated over 3 years. However, if it qualifies (based on the cost) you can take the SEC179 deduction or special depreciation allowance. If it qualifies, the program will give you those other options and you can select what you want.
The yearly support fee is a maintenance cost and will be entered as such in the Business Expenses section in the "repairs and maintenance" section, or as a Miscellaneous Expense - whichever you prefer.
Sorry, forgot to mention that I'm a sole proprietor with an EIN (or TIN) number and use Schedule C. I don't use a W-2.
Okay, so it sounds like I can use the Section 179 for this year's software purchase. That is what I'd like to do - in fact, I'd like to depreciate the software in one year (is that the special depreciation of Sec. 179?).
When you say, "if it qualifies (based on the cost) you can take the SEC179 deduction or special depreciation allowance" - does that mean part of the determination is price?
Anyway, many thanks for your response - it helps.
It is not the price of the software that will limit the 179 deduction but the profit on the Sch C ... so you may wish to review all the ways ( 179 vs bonus depreciation vs regular depreciation) to see what is best for your situation. Once you have entered all the income and expenses in the program review the actual 1040 and Sch C to see how changing things will affect the bottom line. This is the only place in the return where you have the ability to legally manipulate the refund.
If you are new to being self employed, are not incorporated or in a partnership and are acting as your own bookkeeper and tax preparer you need to get educated ....
If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Misc for some of your income but you need to report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
Home Office Expenses … Business Use of the Home
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire. You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms