Tax Deduction for a Computer Purchase
Purchasing a computer to use at your place of employment or for your own business can provide you with a tax deduction. There are more restrictions and limitations on computer deductions for employees than business owners. As a result, employees are never able to recognize the tax savings on the full cost of the computer.
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Computers for Business
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If you purchase a computer for use in your trade or business, including work you perform as an independent contractor, the purchase price is subject to depreciation, which requires you to recover the purchase price over a number of years. However, your computer purchase qualifies for a Section 179 election that allows you to deduct the full price of the computer in the year that you purchase it, provided the total cost of all other assets in your 179 deduction does not exceed the annual maximum, which in 2011 is $500,000. When you operate as a sole proprietor or independent contractor, you must report the computer deduction on a Schedule C attachment to your return.
Partial Business Use
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As a small business or independent contractor, you may find yourself using the computer for both work and personal purposes. In this case, the IRS requires you to reduce your deduction for the personal use. To calculate the amount of the reduction, you must determine the purchase price based on the percentage of time you use the computer for personal and business purposes. If you use the computer more than 50 percent of the time for business-related purposes, you are still eligible to make the 179 election. For example, suppose you pay $1,000 for a new computer that you use 60 percent of the time for business purposes. This allows you to claim a deduction for $600 of your costs, but the remaining $400 is nondeductible.
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Employee Computer Deductions
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For employees, your eligibility to claim a deduction for a computer that you use at work doesn’t depend on how often you use the computer at work. Instead, the computer’s cost is deductible only if using it at work is for the convenience of your employer rather than your own. Moreover, your employer must require you to use a personal computer at work as a condition of your employment, meaning that your job will be in jeopardy if you fail to supply your own computer.
Claiming Employee Deduction
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The IRS requires that you depreciate the cost of your computer over a five-year period if more than 50 percent of the use is personal in nature. However, if more than 50 percent of its use is for the benefit of your employer, you are eligible to make the 179 election and deduct the cost that doesn’t relate to the portion you allocate to personal use. One limitation on your deduction that applies to all employees is that you can only claim it if you itemize. Moreover, you must include it with your miscellaneous expenses, the total of which is subject to a reduction equal to 2 percent of your adjusted gross income.
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