> The US tax code was changed many years ago to raise the dollar
> value requiring equipment depreciation. I forget the value
> threshold but remember it being around $5000. You can do it
> for smaller items but the record keeping is a pain. It's much
> easier to just expense it.
We pay an accountant to keep track of these things for us and
keep us on the positive side of the IRS. I think we've got some
items on a three-year schedule and others on a five-year
schedule. I believe the digital cameras are three and lenses and
other items like that are five. 2006 taxes will be ugly for me
as I'm selling off a ton of stuff that is partially/completely
depreciated as well as buying some HUGE big ticket items that'll
jump on seven-year cycles.
> Photography is subject to the "hobby business" scrutiny but
> the IRS cannot force a business to make money. They may make
> you prove that you are really running a business though.
Exactly. This is why I maintain a set of camera equipment that
is distinctly identified for "home use". There is, of course,
some cross-over, but when questioned I can produce a camera that
is used for personal/non-business use. I even have a tool-box
for my audio business that contains ONLY those items on a
depreciation schedule.
It's also very helpful to stay away from certain gray areas that
are known audit triggers. For example, even though I have a
dedicated darkroom for business use, we don't claim that floor
space on the taxes. It is a red flag that will almost guarantee
that your tax return gets eyeballed. Also, since we had planned
on the sale of the house anyway, it would have involved paying
back portions of the claimed tax deduction down the road.
> However, if you haven't reported a profit within three years
> the IRS will conclude that you're engaged in a hobby and not a
> businees and you won't be able to deduct additional expenses
> until you make a profit in the business.
Not quite. That's one of those "guide-lines" that has some truth
but has many variations in actual law. Essentially you have to
follow the standards of expected sales and profitability in the
business category you are registered. This may be anywhere from
one to ten years. I had to make a change to how I claimed my
cell-phone to stay within the ever changing standards. Even
though my cell phone IS my business phone, unless I had a second
cell phone for personal use, I could only claim a percentage. So
I have to now determine percentage of use. On a positive note,
the change made the business "profitable" and back in line with
the industry standards.
When figuring depreciation schedules, it gets gnarly with camera
equipment. For example, I'm selling a fory-year-old Crown
Graphic that I bought a couple years ago. We placed it on a
five-year schedule and determined an estimated residual (resale)
value. The current sale price is greater than what I paid for
it. What will happen is the claimed depreciation value over the
past two years will need to be paid back on this year's taxes.
With DSLRs it's very whacky because depending on your buy/sell
patterns you can end up paying more in taxes than you ever would
have saved depreciating the stuff. If I buy an E-1 with 14-54
lens for $1000 in 2005 and sell the body in 2006 for $600; I
claimed a lens value of $500, so I made $100 on the camera, but
I had the camera on a three-year depreciation cycle. Ok, so I
figure a residual value of $200 which gives me $100 per year
depreciation. As I used the camera in both 2005 and 2006 I get
to claim $200 in total depreciation expense. But with the sale
of the camera not at $200 (residual) or $300 (residual plus 1
remaining year of the schedule), I actually have a value gain of
$300 which is subject to taxation.
See why I pay an accountant and choose not to depreciate certain
items? Leasing does have advantages.
AG
AG
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