Tax deduction shuffle

December 1, 2009 2:50 PM

Can I buy a gift card this year (2009) for purchasing a computer in the following year (2010) so I can take the tax deduction in the current year (2009)?

I need a large deduction to offset income for my business in 2009. I'd like to buy a new computer but I know the newer, better model is coming out in January of 2010.

Question is: can I buy a giftcard for said retailer in 2009 so I can take a tax deduction in 2009 on it and use the giftcard to purchase the computer in 2010?

It seems frivolous to buy the computer in 2009 when I know the release of the new one is so close away - it's like throwing away money.

I also don't know if that's legally acceptable in the IRS's eyes.

posted by jimmy0x52 to Work & Money (9 answers total)

You are asking to have your cake and eat it too. IANYL, but any rational reading of the Tax Code would not allow this. First, you cannot deduct the entire cost of a computer in any one year. It will have to be depreciated over a number of years. Second, there is nothing obligating you to purchase a computer with the proceeds of the gift card so the deduction is spurious on its face. Third, in order to qualify as a FY2009 purchase you need to take delivery and put it to business use in 2009.

While you may not get caught doing this, if you do get caught you are opening yourself up to a tedious audit, penalties and interest for the improper deduction and the possibility of an additional fraud penalty as well.

Is the 2010 computer that much better?
posted by Old Geezer at 3:01 PM on December 1, 2009

Response by poster: Yes. It is that much better.

I could take the entire deduction under a Section 179 deduction because my total deductions for this kind of stuff is small enough.

Additionally I've been informed that a gift card is an 'asset' technically so buying it wouldn't be considered an expense to my business.
posted by jimmy0x52 at 3:04 PM on December 1, 2009

Best answer: No. A gift card is not a business expense. How does the IRS know you will spend the money on a computer and not comics? If you are audited, this will not fly.
posted by mattbucher at 3:05 PM on December 1, 2009

Response by poster: Apple doesn't sell comics - but I get your drift.

I think this one is answered and my dreams have been dashed.
posted by jimmy0x52 at 3:06 PM on December 1, 2009

Would it be possible to buy other office equipment and then return the stuff for store credit? Buy a similar priced computer on the 30th of December, then return it in January. If you don't open it the store will take it back. Some stores take a percentage as a restocking fee, so be aware.

I don't have a clue about tax laws or running a business so this might be a big no-no.
posted by TooFewShoes at 4:10 PM on December 1, 2009

Best answer: You should speak to your lawyer and/or accountant about a tax loss carryback, if your profits are high this year and you believe your expenses may outstrip your profits (i.e., you will experience a net operating loss) at some point in the next 3 years.
posted by rkent at 4:33 PM on December 1, 2009

You could always call the manufacturer (or a retailer) and ask if you could pre-order and charge it now -- seems to me that this would be kosher. Then again, if it's Apple you probably cannot do this.
posted by zvs at 8:53 PM on December 1, 2009

on reconsideration: That may not be a good idea.
posted by zvs at 8:53 PM on December 1, 2009

Response by poster: I think rkent makes a valid point - if I'm planning on having losses next year it would make sense

but if I'm not, taking the deduction next year won't hurt either.

thanks everyone.

and zvs - apple wouldn't acknowledge the existence of an unreleased production
posted by jimmy0x52 at 2:37 PM on December 2, 2009