Self employment expenses prior to tax year

[madshall]

I purchased a device needed for my business in December 2015, however I started the business in January 2016. Thus, I couldn't claim that expense on my 2015 return as I was not self employed in 2015 and it seems I can't claim it in 2016 either as it was purchased in 2015. How to deal with this?

[DS30 · Accepted solution]

Yes, you can claim a depreciation expense for your business in 2016 related to this 2015 equipment purchased. You will enter this equipment as a new asset when entering your 2016 business income and expenses. When it asks for the date you started to use this new piece of equipment, you will use the date that you started the business as the date to start taking depreciation expense for this asset.

[madshall]

Does this mean I need to select "Accrual" as my Accounting method?

[DS30]

That is not necessary. You can still use the cash method and claim a depreciation expense because depreciation is an allowable tax item on your tax return.

[DS30]

What you need to do to account for this equipment is to add it as an asset to your accounting books in 2016 and include the cost as additional capital that you gave to the company. Then you claim a depreciation expense every year for this equipment (based on it's useful live) and the date it was put into use. Here is a link to some basic accounting principles that might help: <a rel="nofollow" target="_blank" href="http://www.accountingcoach.com/accounting-basics/explanation/6">http://www.accountingcoach.com/accou...>

[re2boys]

You begin depreciating equipment when it is put into service, regardless of when you purchased the equipment.