Self-Employed: How to deduct my computer purchase?

[jjrob94]

Hi all, 

I'm a bit confused about how to deduct the value for a computer I purchased in 2021.

I received a 1099-NEC, because for a period of time, I was technically employed as an independent contractor. I purchased a new computer that I used (and still use, though I am no longer a 1099 employee at my company) for my work and I would like to deduct that expense.  I first tried to enter it as an asset under Section 179, but was presented with the option to enter it as an expense instead--I believe this is the De Minimis Safe Harbor deduction, where I would enter it under Miscellaneous expenses.

I've never done this before and so I want to make sure I'm not doing something wrong. Under Section 179, you are able to enter a percentage breakdown of how much an asset was used for your business, which I would do because the computer was only used for 50-60% business. Do I need to do this for the De Minimis? I didn't see the option to and entered the full value of the computer. However, the issue then is that the value of the computer exceeds my 1099-NEC earnings, so I was then asked during the review to clarify the "Investment at risk" boxes, which I am totally unfamiliar with. 

I'd appreciate any guidance on how to best deduct the cost, or some of the cost, of the computer. Please let me know if I can clarify anything so you can better assist me! Thank you. 

Jesse 

[jjrob94]

@MaryK4 you were so helpful last year! I'd appreciate your guidance again.

[PatriciaV]

You have the option to either expense the computer or claim depreciation. Both result in a full deduction of the cost to your business. 

Since you know you used the computer for other purposes, you should allocate the total cost based on the months you used it for business. For instance, if you worked as an independent contractor for six months, then used the computer for personal projects for the rest of the year, you would claim only half (6/12) of the cost for the business.

While the result of both options is a full deduction this year, expensing the cost has a definite advantage. Generally if you have taken Section 179 Deduction for an asset, and then dispose of that asset before the end of its useful life (5 years for computers), you may be subject to Depreciation Recapture. This means you would pay taxes on the depreciation you claimed in the past.