listed property

deducting computers: listed property explained

Computers are essential for most every job, especially when you’re self employed. But just because you bought a computer for your business in order to do your business, there are still some restrictions with regards to what you can write off.  

It’s one of the most common questions I get and that’s because most self-employed individuals use their computer for business and personal use. 

so I can write it off right?

The answer is yes, kinda. 

When it comes to taxes, the answer is always ‘it depends’.

why wouldn't I be able to write off my computer?

The IRS considers computers Listed Property which essentially means it’s an item that is commonly used for both business and personal use. This rule applies to most electronic equipment such as computers, printers, monitors, etc. There are other items that the IRS considers ‘listed property’, find them here publication 534

Personal vehicles are also considered listed property which is why you must keep track of all your mileage in order to claim a deduction. Read my article on the ins and outs of claiming vehicle expenses on your Schedule C.

what if I only use my computer for business?

If an item is used 100% of the time (exclusively) for business, then it is not considered listed property. But if you’re going to claim 100% of your computer or other equipment make sure you can prove the item is not used for personal use. If this is you, no need to read further. Take a look at some of my other articles on business write offs, Mileage Deduction Explained and 10 Deductions for Self Employed.

Ok, I get it. Listed property are items that are used for both business and personal. 

So what’s that mean for writing it off?

The IRS lets you write off the portion of your listed property that you use for business. It’s the same rules that are in place for writing off vehicle expenses. But unlike a car, there isn’t a clear cut method to show the proportion of business use from items like a laptop or printer.  

The IRS indicates records must be adequate in showing the proportion of time the item is used for business and personal use. This means keeping a log or other documentary evidence on the time or amount you use the item.

For instance, if you’re writing off vehicle expenses, you’ll need to maintain a trip log that shows date, time, location, number of miles, AND why the trip was business-related. Read more here.

The records or other documentary evidence for business and personal use of your computer must support:

95077-200
  1. The amount of the original expense
  2. The amount of each business, investment, and personal use
  3. The total use of the property for the tax year;
  4. The date of the expenditure or use; and
  5. The business and/or investment purpose for the expenditure

why do I have to log investment use?

The IRS allows you to write off the proportion of use for both business and investment reasons. So log that too!

how do you get around the listed property issue?

Either don’t claim the item as a business expense

or

Only use it at your office in a regular business establishment. This includes your home office if and only if your home office is used both regularly and exclusively for business. 

See publication 587.

SO how do I report my expenses for listed property?

Form 4562 – this form should be filled out any time you have any property (listed or not) that is eligible for a section 179 deduction or will be depreciated over many years.

Then you’ll use Form 4562 to fill out Schedule C line 13.

Form 4562 is complicated and can be a bit overwhelming. I highly urge you to use a licensed professional to see how this form is filled out and to submit it for you! Follow this link to see the form in all its non-glory.

I'm confused...

Yep, so are a lot of people. Here is an example straight from the IRS playbook.

Sarah Bradley uses a home computer 50% of the time to manage her investments. She also uses the computer 40% of the time in her part-time consumer research business. Sarah’s home computer is listed property because it is not used at a regular business establishment. Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. Her combined rate of business/investment use for determining her depreciation deduction is 90%.

do I have to depreciate???

If your computer isn’t used predominantly for business, the answer is yes. The only time when you don’t have to depreciate is when you purchase a computer exclusively for business and take the full write off in the year it is purchased, known as a Section 179 deduction.

example please!

section 179

Terry bought a computer in March of 2018 that was exclusively used for business. He can take what is known as a Section 179 deduction – this just means he can write off the entire expense on his 2018 taxes.

 

depreciate

Alexa bought a computer in December 2017 but she didn’t start using it exclusively for business until February 2018 because she was on a fabulous 2 month vacation (or for whatever reason). She cannot write off the full cost of the computer on her 2017 taxes. Instead it must be depreciated. Form 4562 is where she would figure out the depreciation schedule.

At Gig Serious, we can walk you through the ins and outs of listed property, how to keep adequate records during the year, and much more. Click here to contact me and we can get you up to speed!

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