Computers have become essential tools for almost every business. If you're producing income with your laptop or desktop, your purchase of that machine is fully or partially deductible from your taxable income. You can take the write-off as a business, a self-employed freelancer or an employee if the cost is not reimbursed by your employer. Keep in mind the Internal Revenue Service rules on personal and business use.
Deductions of computers and other office equipment vary with your status: business, self-employed or employee. The majority of employers provide essential computers to their office and field workers, but an employee who buys another machine for work purposes and who is not reimbursed may take the cost as an unreimbursed employee expense. This is a Schedule A deduction that is available only if you itemize and only to the extent that the total of all such expenses exceeds 2 percent of your adjusted gross income.
Business Deductions and Section 179
Under Section 179 of the tax code, businesses can deduct the cost of a computer purchase in the year they buy the computer, as long as they use the machine at least 50 percent of the time in their business. If the computer is also used for personal business, the percentage of business use is applied to the cost. Buying a computer for $500 and using it 80 percent for business and 20 percent for home use means a $400 deduction in the year of purchase.
If the computer is not used at least 50 percent of the time, Section 179 does not apply, and the business must depreciate the computer. This means to write off a portion of the total cost over a period of several years. In the case of office equipment, including computers, the IRS sets the depreciation period at five years. The rules on business versus personal use still apply, and the total amount depreciated must reflect the percentage of business use.
Rules for Freelancers
Self-employed freelancers can also deduct the purchase price of their work computer, and they must also apply the business/personal use percentage. The deduction is taken on Schedule C, on which individuals and sole proprietors list their expenses. In some cases the IRS requests documentation of how the computer is used in the form of a log or diary. This is not necessary if you keep the computer in your place of business and solely for your business. The exception applies whether you have an office away from home or a space that qualifies for the home office deduction.
Rules for Students
Students need computers for research and communication with faculty and peers. Although the IRS allows a deduction for educational expenses, the catch is that only tuition and fees are deductible, along with any equipment required as a condition of enrollment. If a computer is optional at your school, you can't deduct the cost. If the school requires you to buy a computer and pay the school for the machine, you can deduct it.