PC Component Write off on Taxes

Hardware
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Hey level1 guys/gals,

I know you aren’t certified public accountants. So I won’t hold your word to the law or hold you liable for this. However, I am thinking about starting a business. According to IRS.gov you can get up to 5,000$ in expenses written off on your taxes for starting your business. This can include things such as market research, computers, buying books/forms, or materials to start your business. Since pretty much every business requires a computer these days. For example my business would use the computer for accounting/billing purposes. Would it be possible for me to buy computer components instead of a pre-built dell? Then write those components off as I would a pre-built computer? The reason I want to do this is for longevity and durability purposes. I want to invest in nice productive workstation components and a larger display for productivity. Since these will last MUCH longer than a typical dell you’d see in an office/library/public school. I think it’s worth the investment. What do you guys recommend?

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Essentially you can claim whatever you want as a business expense, as long as you have the data to back it up. So if you have data that backs up each components usage, and how much it was used for business purposes, you can claim it with minimal issue. No backup data and you’re going to have a bad time.

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In terms of back up data what do you mean? Like me having excel and many saved billing accounts and payroll documents or ?? do i need to document my time as i use the device/computer and its software i paid for to use in my business?

I did read the link you provided, but i guess in gist it is just saying that i need to be able to prove i use certain purchases for business only. Since i’m out of college now that is really the only reason i fire up excel/word in the first place is to type up invoices, payroll, letters, and other forms.

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Is registered tax preparer running small business

What do you need help with?

obligatory fuck turbo tax…
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You need a receipt and some explanation/evidence that it’s used for you business. This shouldn’t be a headache if you’re building a computer to use for work. Most people need computers to work. If you really want to, just take a picture of yourself working on it.

The real issue with building a PC is depreciation. Large business purchases that are expected to last over a year are supposed to be declared individually as depreciable assets on your return. If you build the PC, this becomes more complicated, because you have to A) depreciate each piece of the PC, or B) expense each component as an nondepreciable expense.

I have done both depending on the situation. Sometimes I will put PC parts under maintenance/repair. In the end, it’s still all an expense, and you can deduct it from your business income, but it’s not always 100% clear what category is the correct one.

If, for whatever reason, you ever get audited, don’t talk to the auditor. Get a tax lawyer immediately. The auditors are financially incentivized to get more money out of you. They will bully you. Unless you’ve done something that’s clearly out of line, a tax lawyer will take care of you.

I was freelance/self-employed for all of my 20’s. I actually just did my taxes today and got my first tax refund in over a decade (I have a salaried full-time position now).

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Alright, seeing as there’s been no reply I cannot tailor make a recommendation so I’ll just do a huge knowledge dump in my spare time today.

Why does everyone instantly go to the most expensive option out there? They have a lot of schooling and certifications, yes. But, they aren’t any more capable than someone like me for what you’re trying to do (but they’ll charge you way more than I would).

Do you have the actual documentation for this? That number seems absurdly low to me.

Yup, and the explanation doesn’t even need to be that formal or anything. It’s really not a big deal.

Yes. And you can make the decision at the time when you do your taxes. If you need a lot more expenses for the year to help alleviate the tax liability, then take it all at once, if you’re not super far ahead in terms of profit, then you depreciate it.

Yes, you are most likely not in my business so you should get someone who knows what they are doing.

This. Do not expect to get any refunds if you’re self employed. You have to pay Estimated Tax (your tax professional will help you with this) in order to pay your social security and medicare liability regardless of how much you make. I reported far less than my deductions and still had to pay in for these even though I had no taxable income.

Now you may be thinking to yourself you should incorporate as an LLC…
I cannot express this enough:

DON’T.

As an LLC you not only have more paperwork and an annual expense for registering, but you have to file it on a Schedule C (or K-1 if a partnership) as well as take an income from it. What that means is you not only pay taxes on your share of the profit but also on the income you have to take as well (you’re getting taxed twice essentially). The benefit they claim is you aren’t personally liable if someone sues you, which is bullshit. First they sue the llc, then they sue the officers who just so happen to be you. So you don’t really have much protection. Just run the business as a sole proprietorship or partnership with an umbrella policy as your insurance. This way you aren’t being double taxed and you have the same level of protection as an llc.

Depending on what business you’re starting and what state(s) you plan to do business in, you may have to obtain sales tax numbers as well as additional licenses etc. Keep track of these expenses as they can be written off.

Keep a written log of what miles you drive for the business (you can also keep track of the actual vehicle expenses used for business but it’s almost always better to take the mileage instead of the actual expenses unless you did a huge repair on the vehicle). You can’t take commuting miles, defined as driving from your house to the business, but you can take any miles you drive to make sales/obtain materials/etc.

Any expenses related to the business you should keep track of. Any money you put into the bank for the business you have to report as well as checks/cards hint, hint .

In order to remain a business the rule of thumb is you have to show profit for 3 years out of every 5.

If you take clients out to dinner/etc. you are able to claim the portion that the client had assuming you paid for it (which you really should be if it’s a business dinner… otherwise that just looks bad lol).

tl;dr
Don’t go llc, go sole proprietorship or partnership if it’s not just you acting as owner, and get an umbrella policy for the insurance.

Track All the expenses and spin the story to make borderline things apply to the business.

Only go CPA if you really need the additional benefits of that over a traditional tax professional (and if you do go tax professional try to find the small businesses, not the chains. The people working in the chains get paid diddly and charge absurd amounts. I did a guy who went to H&R last year and they charged him almost $400… I don’t even think we have partnerships that we charge that much where I work).

You may also want to get a good financial advisor to help point you in the right direction for that side of things.

If there are more questions, just ask. I’m always on the forum.

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Hey ThatBootsGuy,

Sorry for the delay in the response I was working and away from the house for a couple of days. Don’t really check this site on my mobile. I have been thinking about going LLC and I was hesitant to do so because of the fees and something about the taxes didn’t make sense but I wasn’t able to quantify it because I never had a real example to pull from. I just felt like something was off when friends of mine explained their LLC pay structure.

THANK YOU for giving me that recommendation. I will keep my future business as a sole proprietorship/partnership.

Well basically, I was thinking of buying the PC parts to build a PC for general purpose business tasks. The reason I didn’t want to buy a pc is because any pre-built (typically) is more expense or of equal price to a comparable part picked system. At least now a days with RAM and GPU prices being so absurd. Sometimes a pre-built might be cheaper but the other thing is I have the option of knowing what components going into my system and making sure they are durable to minimize downtime.

I guess my main question was what is the maximum amount of “start-up” costs I can utilize when buying equipment, pc’s, software, market research etc… To start my business?

Assuming the PC parts altogether are over 2500$ should I write them off as an ASSET or as part of my start up costs? Can I include things such as a Monitor in this cost for startups/asset? or do I need to itemize it very specifically? Is there an easy calculator or equation to determine which is the better deduction? Or are there limits to when you can do one or the other? I know you can only claim startup costs when you actually start the business. So i’m looking to maximize them this coming 2019 tax season. I will be starting my business this year.

I hate CPA’s and find them basically useless. My father has had a CPA for many years for his business and wasted 500$ many times on them. They were so lackadaisical in their due diligence that when I went to University they never claimed the American Opportunity Credit on my parents taxes. Which would’ve been nice for my parents since they always owed less than ideal sums of money. So unless I have mountains of paperwork I never will use one.

Does reducing your tax liability hurt your Social Security and Medicaid benefits in the long run? (Going to eventually start IRA, retirement investments and healthcare savings, but just curious)

Or is it more of a don’t spend more money if you don’t have to situation?

Do you have any more general knowledge or recommendations for me when starting my sole proprietorship?

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Go for it! I’m currently typing this response at work with a computer I’ve built (and wrote off of course :wink: ).

I’m not sure if there even is a maximum.

IRS Publication 535 will have all the information you can ever need on business expenses as far as federal tax is concerned (your state will vary)

Down in section 8 of Pub 535 they go over start-up costs in depth.

If you want, you can make a sale prior to incurring certain expenses so you can utilize those expenses as regular rather than start-up, which depending on your situation (and assuming there’s a limit on start-up costs, I’ll have to look into this more) could be beneficial.

Not sure about social security/medicare. If you’re near my age though (early 20s) you shouldn’t really worry about social security since it’s most likely not going to be around anymore (or the little there is left is going to be very insignificant).

I would say start up a small business 401k plan if you can. That allows you to contribute a very substantial amount annually, and will accrue interest. There are specific limitations on IRAs, $5,500 is the absolute maximum you can contribute into all of your combined IRAs (that number increases to $6,500 for the catch up period after age 50). IRAs are a great supplemental retirement plan, but shouldn’t be the totality of it. Obviously diversify your portfolio and all that, a financial advisor would be able to elaborate more on this subject.

Sitting down with a good tax professional and going over your situation in detail, they can give you better recommendations than I could as far as when/how to take certain expenses. I will say, the rule of thumb for having a business is you show profit 3 out of every 5 years. The amount of profit is not specified, so you can keep that as low as you want (provided you have expenses to show that) while taking losses in the other 2 years (again, can basically be as large as you want). And remember, you have to report any payment you receive via check/card or cash that you put into the bank as income.

This is the gist of it. Some of my business clients like to spend as much as they can to reduce their profits just so they don’t have tax liability at the end of the year. Now if the stuff they’re purchasing is truly useful for the business that’s perfectly fine and encouraged. If you’re incurring expenses just to incur expenses (and your tax liability is not too high of course) then you aren’t maximizing the effectiveness of your money (especially when you can just throw that money into your 401 to reach the same result on your taxes).

Not really, the way I determine which is better is whether or not you need the expenses this year or not.

If you’re showing a lot of income in a particular year, then you probably want to take the expense in that year. If you’re not showing a lot of profit or even showing a loss then you’ll probably want to depreciate what you can. This determination is made after you subtract all the non-depreciable expenses for the year of course. And also, you can only choose one or the other for each expense obviously (i.e. you can’t take the remaining expense 3 years after you start depreciating something under normal circumstances, if it’s a loss I believe that’s handled differently).

It’s fine to be lackadaisical to an extent (so you can try to write off some things that you may or may not be able to). But not claiming the AOTC? that’s just gross negligence. If it’s been less than 3 years I highly suggest you amend your taxes because that’s a $2500 credit (assuming your expenses regardless if they were loans or not exceeded your scholarships/grants for the applicable years by that amount or more).

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LMAO yeah HR way better even then doing it by yourself its much more better… I really dont see how it can be all that hard just takes a bit of time with good records

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you do need to be able to justify these expenses as business expenses. a simple “yes i use for work” will be fine when you file (in fact, no one will ask in the first place), but not if you happen to get audited. i missed it if you mentioned what this business is about, but if you try to write off a $5k gaming PC for “work” that could be done on a $450 prebuilt office machine, you will have problems.

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To be more specific about the business I’m starting.

I am going to start a Landscaping, handyman, and general maintenance business.

As far as the PC goes I will be using it for typing up estimates, liability agreements, Contracts, expense reports, storage of tax documents, sensitive client information, 3D renders of potential garden layouts, pond designs, gazebo and patio structures.

Eventually my goal was to learn “some” software to be able to effectively 3D model a potential garden project or patio installation. So I’m thinking I’ll need semi-robust hardware (GTX 1070 equivalent perhaps?) for rendering as well as a decent little monitor to show clients what I can do for them.

I also am not super familiar with 3D software that would be recommended for this purpose. So if anyone has some suggestions that’d be awesome!

The other stuff was having Microsoft office for excel to keep track of these reports, info, and estimates. (Which I was going to write off)

Aside from that maybe a larger capacity HDD to allow storage of these documents with some encryption for client security in case someone tries to access my clients info.

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I’m not too familiar with 3D software, but some may require workstation cards rather than the consumer grade stuff. I know there’s many people here who are far more familiar with that stuff than myself.

Not a bad software… but certainly not a great all around accounting solution.
Quickbooks is the big one, but shop around and see which best fits your needs, you may not need the big name software when a cheaper/free one would do.

You may like to be able to write everything off, but you have to keep in mind, that’s money that otherwise could’ve been spent elsewhere if it’s not a necessary purchase. I’ve been working hard (mostly arguing with my “boss”) cutting costs and so far I’ve shaved about $3k worth of unnecessary expenses off the business, and when I get full control what expenses are left are effectively going to be cut in half because paperless.

And that’s a great idea. I’ll be doing something similar at the end of the season for my own business.

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Well I thought I read that 5,000$ number on IRS.gov but I haven’t been able to find it through searching. However, when duckduckgo’ing every website from intuit(turbo tax) to startupnation and beyond basically states that number. I will read publication 535 that you linked and it may be in there!

https://startupnation.com/start-your-business/plan-your-business/business-startup-costs-write-off/

OK, so you’ve tracked all your business startup costs before opening shop. Now comes the good part: You can write off up to $5,000 in business startup costs and another $5,000 in organizational expenses in the year that you start a business. (Note: These deductions are reduced if you have more than $50,000 of either type of expense.)Once you’ve written off that first $5,000, you can still get a tax benefit from other expenses. However, those startup costs will have to be written off, or amortized, over 15 years.Sound like a long time to have to wait to get the full benefit of a startup deduction? It is. But for most small startups, these rules are an improvement over what was in place before the American Jobs Creation Act of 2004. Until then, all startup and organizational costs could be deducted over 60 months – but none could be simply written off. The smallest startups, which typically have fewer than $5,000 in total business startup costs, are going to find these new rules far easier to work with.

I keep hearing that social security won’t be around anymore why does everyone keep suggesting that? Even if the economy/markets improve you think it’ll go away?

I am aware of the IRA limit of $5,500 but i just figured if my profits get to that point and spending more money on expenses like you stated isn’t providing an immediate and necessary benefit to the business I can put my money in that to reduce my liability. What is the limit you can contribute annually to a 401k to use as a write off for taxes?

I remember that rule of thumb for showing profit 3/5 years. My father always mentioned that about his business. Otherwise they downgrade you to a “hobbyist” or something right?

I keep telling my parents to amend their taxes for them to claim the AOTC but my father keeps saying it would be wasted time and effort. He is very stubborn and doesn’t realize that the AOTC is not just a deduction but can also be a refund on taxes or at the very least how BIG of a deduction/refund it gives. Since he ended up owing money I bet he would get a substantial refund(since he already paid the IRS) in doing this. Idk the best way to goad him. He says hiring a professional would cancel out any real benefit of doing it anyway. Which I personally doubt.

I claimed the AOTC 2 years myself on my own taxes. So he’d be able to go back to 2015 tax season and claim it for that year right? or could he go as far back as 2014 tax season?

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How would you recommend going paperless? Should I stick to paper for now until my business size grows? ink for my printer is around 160$ and lasts a month or two at most. Not to mention paper, plastic sheet protectors etc… to keep the documents nice when I present them to my clients. Since my operation is going to be small at first I can only see these expenses growing as I get more clients, make more mistakes when printing documents, and have to redo contracts over and over.

I don’t have a website, do you think any of those make your own site solutions like linustechtips is always advertising are worth it? Or should I get someone to design a basic site?

What do you think of Freshbooks? Is quickbooks really that much better than excel? I’m just so accustomed to writing cell blocks with functions and pulling data from one cell to another for estimates, taxes, subtotals, quantity’s and etc.

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Regardless of what you buy in terms of PC hardware it’s easy to write off. The owner of where i work just bought a quad cab GMC Denali short bed as a shop truck so I don’t think you’ll be scrutinized about what gpu or monitor you picked.

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I’m not familiar with trucks, is that impractical for a shop truck lol? Quad cab seems odd to me though…

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No, it’s a Luxury pick up and it will never be used by anyone but the owner to go to Tahoe.

@ThatBootsGuy has some solid advise, definitely recommend a tax preparer if you’re unsure.

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I found where publication 535 talks about business start up costs. Page 24 Chapter 7 it says:

Business Start­Up and
Organizational Costs
Business start­up and organizational costs are
generally capital expenditures. However, you
can elect to deduct up to $5,000 of business
start­up and $5,000 of organizational costs paid
or incurred after October 22, 2004. The $5,000
deduction is reduced by the amount your total
start­up or organizational costs exceed
$50,000. Any remaining costs must be amor­
tized. For information about amortizing start­up
and organizational costs, see
chapter 8

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Well eventually I will need to get a vehicle for my business. (for actual use) I’m still driving a 20 year old hatch back that I can fit my ladder and tools in. Good to know you can write off vehicles

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yes he would, that credit is worth up to 2500.

He can go back to the 14 tax year since this year we’re doing the taxes for 17.
Assuming you deserve the full credit for those years, you can get 7500 back.

Even a CPA wouldn’t charge enough to make that insignificant.

Yes, the benefit of a business over a hobby is mostly in that you can show a loss which lowers your taxable income from other sources. As a hobby you can only write off expenses up to the income, you can only show positive income or 0 as a hobby.

My buddy out in Buffalo, who formerly worked on wall street, has an mba in finance and all that recommended me this:
https://investor.vanguard.com/what-we-offer/small-business/individual-401k

Which, if nothing else, can be used as information.

I have the ability to go paperless because my software suite provides for the ability to scan in everything and keep everything on file rather than just the numbers which we’re currently doing (while also maintaining 4 years worth of individual returns which is just stupid). You may not be able to go full paperless, but what you can do entirely on computer you want to have backups of backups of backups of just to be safe.

Neither do I. One of those make your own website solutions could be sufficient for your needs. If you want to do something special you can hire someone to do it, and then write that off of course. My business has been around 30 years or so, I came aboard 3 years ago, and it’s been entirely word of mouth. We do over 1000 clients a year.

I’ve never personally used it, but it’s a full accounting solution. It allows for better recordkeeping in some aspects than excel, and is easier to use. If you’re accustomed to excel then you can go ahead and use that of course.

Yup, not only the vehicles, but also the miles you drive for the business. You can keep track of the actual expenses like gas, oil changes, etc, but 9/10 times the mileage rate is going to be more beneficial. You keep track of that with a written log of some type.

And it’s not just vehicles. Literally just about anything you can remotely consider used by the business can be written off as an expense. I’ve got a garage partnership that we wrote off their ATV as it was used for “shop purposes” like plowing snow.

Ah, that makes sense. Your tax pro will be able to assist you in how to allocate the costs, etc. And if I read correctly, start-up costs are incurred before your business starts doing business so you can probably skirt those rules a little by making a sale at some point.

Very true, I had a client come in who had bought 2 trailers 1 solely for the business, but used the other for the business a little bit, so we wrote both off.

Nope, you’re usually fine. Unless it’s something grossly out of line you shouldn’t have much trouble getting things to go towards the business.

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