OFFICE EXPENSES, DEPRECIATION, OTHER EQUIPMENT/PROPERTY

Office Furniture Tax Deduction

While many modern entrepreneurs operate lean businesses, often times in order to conduct business purchasing items like a computer, telephone, printer and sometimes even office furniture is required. While these items are generally ordinary and necessary business expenses, they also can be considered investments in your business, deductible over many years through depreciation. Depreciation can generate significant tax savings for you but it is a complicated topic so if you purchase office furniture or equipment for your business consult with your tax advisor to determine the appropriate treatment for your specific assets.

DEVELOPER / DESIGNER

Curry is a sole proprietor web designer who is in the process of moving his business from his home office to a hip 300 square foot office downtown. The office space he rented did not come furnished. Curry spent $1,500 on a sofa, $200 on a coffee table, $250 on a desk, $150 on a refrigerator, $700 on artwork and $300 hiring someone to build all of his furniture. Since the cost of furnishing his new office is a necessary business expense and his purchases would be considered capital assets, he would depreciate $150 (refrigerator) over five years and $2,950 (other furniture and build cost) over seven years using the MACRS general depreciation system. He would then deduct a portion of his $3,100 expenditure in the current year as a depreciation expense on line 13 of his Schedule C.

PHOTOGRAPHER

Austin is a professional photographer who rents a studio downtown where he photographs his clients and edits his pictures. When Austin moved into the space he purchased $4,000 of camera equipment, a $500 desk, $300 chair, two $500 rugs, a $15 lamp and $125 of miscellaneous office supplies. When Austin prepares his taxes, he would want to classify his camera equipment, desk, chair and rugs ($5,800) as assets and depreciate these items. He could deduct the $140 he spent on office supplies and his lamp as office expenses on his Schedule C.

PROFESSIONAL SERVICES

Ben is a freelance management consultant who just opened up his own firm. He works from a space in his home that meets the IRS home office requirements. During the year he purchased a $500 desk and $3,000 computer to be used in his home office. When Ben prepares his taxes, if he doesn't take a Section 179 deduction on these assets he would depreciate the desk over seven years and the computer over five years on Form 4562. He would then record the depreciation on line 13 of his Schedule C.


AIRBNB HOST

Angel recently purchased a second property so he could host Airbnb guests on a full-time basis. He spent $15,000 furnishing his new rental property with electronics, appliances and furniture. When Angel files his taxes he would want to add the $15,000 of asset purchases to his balance sheet and depreciate each item over five years using the MACRS general depreciation system. Angel would calculate depreciation on Form 4562 and deduct his first year depreciation expense on line 18 of his Schedule E.

UBER DRIVER / RIDESHARE

Kenny is an Uber driver who owns a vehicle exclusively used for his rideshare business. Last year, he spent $2,000 on a navigation system for his business vehicle. Rather than depreciate the navigation system consistent with the vehicle, his accountant advised him he would be able to classify the navigation system as a Section 179 asset and deduct the full $2,000 for last year.

THINGS TO CONSIDER FOR THE PAYROLL TAX DEDUCTION

  • The furniture and equipment you purchase for your business will likely be considered capital assets (investments in your business) and need to be depreciated over many years. Generally, through depreciation you can deduct the cost of computers, office machinery, research and experimentation property and appliances over a five year period, while expenses you incur for office furniture and fixtures can be deducted over a seven year period. Refer to IRS link below for a full list of asset recovery periods.
  • In most cases, to depreciate your office furniture and equipment the Modified Accelerated Cost Recovery System (MACRS) General Depreciation System (GDS) will be applicable. If you own certain "listed property" (<-- https://www.irs.gov/pub/irs-pdf/p946.pdf) used less than 50% for business the Alternative Depreciation System (ADS) may be applicable. Depreciation for your office furniture and equipment can be calculated on Form 4562.
  • The office furniture and equipment you purchase may be fully deductible in the year purchased if it qualifies for the Section 179 deduction. In 2018, the Section 179 deduction allowed up to $1,000,000 of tangible property used more than 50% in a trade or business to be deducted in the year purchased. Refer to our Section 179 page for additional information.
  • Purchases of certain low-value furniture or equipment with a useful life of less than one year may be fully deductible in the year purchased. Refer to our Office Expenses page for additional information.
  • Costs you incur placing your office furniture and equipment into service (shipping, installation, etc.) should be added to the basis of your asset and depreciated over the same recovery period as the furniture and equipment.

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