New 1099 Consultant and writing off for taxes in the current year?

December 14, 2017 8:30 AM

New 1099 employee, and cannot figure out if it matters that it will be less than a month when I try to write off expenses for 2017 [More Inside]

I am very new to working on a 1099 after many many years as an employee in various companies.
I'm learning how to do this, but one thing I cannot find an answer for is howto handle only starting my "sole proprietorship" earlier in December, and how it relates to what I can write off on my taxes.
Specifically, I need to purchase a new computer for 100% business (I have a personal one that I will continue to use for personal use). If I was to purchase a $1000 notebook computer this month, am I still able to write it off as an expense for 2017 Tax year? I ill make more than the $1000 this year to offset the writeoff.

(YAN my tax advisor)

Tnx

posted by niteHawk to Work & Money (8 answers total)

I am not a tax person. When you buy stuff for your business you can take the write-off immediately or stretch it out over several years. My understanding (based on being self-employed and doing this hokey pokey for over a decade) is that even though you started the business in December, it's still legit to do this since the laptop will be owned by the business going forward.
posted by jessamyn at 8:36 AM on December 14, 2017

I agree with Jessamyn. It is a small enough expense that you will not have to depreciate it over time, unless you want to. If you have a legitimate home office you can deduct that for one month. Even if you have expenses that are more than what you earn, you'd have a business loss that you can offset against other income.
posted by beagle at 9:21 AM on December 14, 2017

I also see no problem. If you were just starting a business, opening the door on December 1 and hoping people will stop in, and no one did, then maybe the IRS could make the point that this is not a real business expense. It does not sound like that is the case here.
posted by megatherium at 12:06 PM on December 14, 2017

Nthing - it will not raise a ripple. $1,000 is a significant expense in a household budget, but for a schedule C business it's a trip to Office Depot. Doesn't matter how late in the year - that's something you can go ahead and expense 100% in 2017.
posted by randomkeystrike at 12:48 PM on December 14, 2017

This is known as a Section 179 deduction. You can deduct up to $500,000 of purchased equipment and software per year. To deduct in 2017 it must be purchased and put into use before December 31.
posted by JackFlash at 1:03 PM on December 14, 2017 [1 favorite]

Best answer: First, have you acquired and read the IRS Publication 583, Starting_a_Business? It very clearly lays out in Table 2 on Page 6 what forms you will need to file as a sole proprietor. Also, you need IRS Publication 535, Business_Expenses to make sure you understand when something is an expense or an asset that has to be depreciated.

By the way you phrase your question, I am assuming you do not have accounting experience, because if you did I would expect you to refer to business expenses and not write-offs, which has a very specific meaning when you are accounting for your business. As a sole proprietor you account for your business income and expenses on a 1040 Schedule C form and incorporate the results into your 1040.

And finally, I would treat a $1,000 laptop as an expense rather than an asset. A $5,000 computer I would treat as an asset.
I am an accountant, a sole proprietor, and a business analyst specializing in accounting and operations software. I just finished a fixed asset project for a multi-national firm. Feel free to MeMail me if you want some additional information or if you have more questions.
posted by Altomentis at 1:36 PM on December 14, 2017 [3 favorites]

Response by poster: Thanks Everyone!
This is exactly what I needed to know!
posted by niteHawk at 2:30 PM on December 14, 2017

Best answer: I would agree with Altomentis that is would be slightly less paperwork hassle in this case to just expense the computer rather than using Section 179 (which requires filling out Form 4562). The bottom line for taxes is exactly the same, but less paperwork.

In 2016 the IRS created a new de minimus safe harbor threshold for expensing capital equipment. For you the threshold is $2500. You can simply expense equipment if it is no more than $2500 for a single invoice. No need to use Form 4562. For larger companies that provide "applicable financial statements" (not you), the threshold is $5000.

Just expense the computer on line 22, Office Supplies, on your Schedule C.
posted by JackFlash at 2:35 PM on December 14, 2017 [1 favorite]