How can I estimate the total savings from a specific tax deduction?
May 19, 2010 8:40 AM Subscribe
How can I estimate the total savings from an $1850 tax deduction?
This seems like it would be a common question, but I can't find any info on the subject.
I was just hired for a new job. I'll be making about $60,000 annual salary. However, I need to provide my own laptop for the position. Since it is necessary to perform my job, I can deduct the cost of the computer from my taxes.
But how much will this ultimately save me?
I've been considering of getting a 15-inch Macbook Pro, which will cost about $1850 after sales tax. Currently, I've been calculating as such:
1. In 2010, I will make about $50,000. This puts me in the 25% income tax bracket.
2. Deducting the cost of the computer will save me 25% of $1850, or about $460.
Is this correct?
This seems like it would be a common question, but I can't find any info on the subject.
I was just hired for a new job. I'll be making about $60,000 annual salary. However, I need to provide my own laptop for the position. Since it is necessary to perform my job, I can deduct the cost of the computer from my taxes.
But how much will this ultimately save me?
I've been considering of getting a 15-inch Macbook Pro, which will cost about $1850 after sales tax. Currently, I've been calculating as such:
1. In 2010, I will make about $50,000. This puts me in the 25% income tax bracket.
2. Deducting the cost of the computer will save me 25% of $1850, or about $460.
Is this correct?
Response by poster: bcwinters,
I'll be able to deduct more than $8K. I'll also be able to deduct vehicle expenses for the job (it will involve a good bit of driving). Combining the computer, vehicle, charitable donations, and recently finished grad school expenses, my deduction will be a good bit more than $8K.
posted by JacksonEsquire at 9:01 AM on May 19, 2010
I'll be able to deduct more than $8K. I'll also be able to deduct vehicle expenses for the job (it will involve a good bit of driving). Combining the computer, vehicle, charitable donations, and recently finished grad school expenses, my deduction will be a good bit more than $8K.
posted by JacksonEsquire at 9:01 AM on May 19, 2010
Response by poster: I also forgot to mention that my filing status is single. So my standard deduction (according to Wikipedia) would only be between $5K to $6K. I'll definitely be itemizing this year.
posted by JacksonEsquire at 9:06 AM on May 19, 2010
posted by JacksonEsquire at 9:06 AM on May 19, 2010
Aren't higher education expenses under a different area than your Schedule A itemized deductions?
posted by ROU_Xenophobe at 10:03 AM on May 19, 2010
posted by ROU_Xenophobe at 10:03 AM on May 19, 2010
JacksonEsquire: based on your original post and comments in-thread, I highly recommend you get a professional to prepare your taxes. I'm not a tax expert, but it seems to me unlikely that the laptop falls under §162(a) or §179 (necessary and ordinary business expenses, depreciable business purchases) but instead under §262 (personal expenses) unless you work for a graphic design shop and use it mostly for work. The Tax Commissioner is not going to be impressed by your story of how an nVidia card with 256MB of GDDR3 graphics memory is necessary for your Excel spreadsheets.
http://www.irs.gov/publications/p587/ar02.html#en_US_publink1000226392
posted by thesmophoron at 10:35 AM on May 19, 2010
http://www.irs.gov/publications/p587/ar02.html#en_US_publink1000226392
posted by thesmophoron at 10:35 AM on May 19, 2010
You should familiarize yourself with Topic 514 and the other information it references.
posted by iknowizbirfmark at 10:40 AM on May 19, 2010
posted by iknowizbirfmark at 10:40 AM on May 19, 2010
Response by poster: Wow, I opened up a tax condundrum, where no one seems to quite know the answer.
I'll tell you what I've been told by my new employer:
1) That the computer can be filed as a depreciable business purchase
2) That the computer needs to both beefy and portable (I'm an engineer and run resource intensive and graphics heavy simulations) - so yes, an nVidia card with said specs can be considered necessary
I guess this was why I wasn't able to find a proper answer on Google.
posted by JacksonEsquire at 10:52 AM on May 19, 2010
I'll tell you what I've been told by my new employer:
1) That the computer can be filed as a depreciable business purchase
2) That the computer needs to both beefy and portable (I'm an engineer and run resource intensive and graphics heavy simulations) - so yes, an nVidia card with said specs can be considered necessary
I guess this was why I wasn't able to find a proper answer on Google.
posted by JacksonEsquire at 10:52 AM on May 19, 2010
Will your employer accompany you to an IRS audit to support your claim? Hire a CPA.
posted by leafwoman at 11:12 AM on May 19, 2010 [2 favorites]
posted by leafwoman at 11:12 AM on May 19, 2010 [2 favorites]
Best answer: §179 covers this case, then. If I remember right, you can either take a depreciation deduction for each of the next five years, or take it all now, but I don't know exactly how that works. I'm pretty sure it's more complicated than (marginal tax rate)(purchase price) though.
posted by thesmophoron at 11:12 AM on May 19, 2010
posted by thesmophoron at 11:12 AM on May 19, 2010
Best answer: in addendum ... hire a CPA (whose cost can be deducted)
posted by leafwoman at 11:13 AM on May 19, 2010
posted by leafwoman at 11:13 AM on May 19, 2010
Response by poster: Thanks for the help. Apparently the answer is not as cut-and-dry as I thought it would be.
I'll get in touch with a profressional.
posted by JacksonEsquire at 11:18 AM on May 19, 2010
I'll get in touch with a profressional.
posted by JacksonEsquire at 11:18 AM on May 19, 2010
You should definitely hire a tax professional. But here's a completely off-the-cuff calculation: Deducting the cost of the laptop means that the amount is taken off your income for the year. Your income is what your tax burden is based off. So basically, you don't have to pay income tax for the $1850 you spend on that laptop.
I'll pull 25% out of my butt as a figure for the income tax you have to pay. 25% of $1850 = $462. So by deducting your laptop, you'll have to pay about $462 less in income tax next year.
This of course presumes that you use your laptop 100% for business. If you use it only 50% for business and 50% for personal stuff, then you can only deduct half. This would result in having to pay $231 less in income tax next year. Your tax person will be very strict about this!
Obligatory disclaimer: I'm not a tax professional, just a freelancer who's had to navigate the murky waters of self-employment for the last few years.
posted by ErikaB at 11:34 AM on May 19, 2010
I'll pull 25% out of my butt as a figure for the income tax you have to pay. 25% of $1850 = $462. So by deducting your laptop, you'll have to pay about $462 less in income tax next year.
This of course presumes that you use your laptop 100% for business. If you use it only 50% for business and 50% for personal stuff, then you can only deduct half. This would result in having to pay $231 less in income tax next year. Your tax person will be very strict about this!
Obligatory disclaimer: I'm not a tax professional, just a freelancer who's had to navigate the murky waters of self-employment for the last few years.
posted by ErikaB at 11:34 AM on May 19, 2010
ErikaB: "I'll pull 25% out of my butt as a figure for the income tax you have to pay."
Why pull figures out of thin air?
Assuming you are allowed to deduct it at all, and allowed to deduct the entire purchase rather than just depreciation, here's how you estimate your "savings". Effectively, you need to consider the marginal tax rate.
1. Estimate your annual income ($50k plus any interest, side jobs, rental properties (if you actually have these you need a tax accountant stat), etc.)
2. Estimate your total deductions outside this purchase, including this laptop. Student loan interest is deductible, as is mortgage payments, any vehicle deduction (is car sales tax still deductible or was that a 2009 one shot deal?).
3. Repeat step 3 but without the laptop. This is fairly easy but there's edge cases where your purchase is partially on either side of a bracket.
4. Subtract 3 from 2, that's the savings.
posted by pwnguin at 4:52 PM on May 19, 2010
Why pull figures out of thin air?
Assuming you are allowed to deduct it at all, and allowed to deduct the entire purchase rather than just depreciation, here's how you estimate your "savings". Effectively, you need to consider the marginal tax rate.
1. Estimate your annual income ($50k plus any interest, side jobs, rental properties (if you actually have these you need a tax accountant stat), etc.)
2. Estimate your total deductions outside this purchase, including this laptop. Student loan interest is deductible, as is mortgage payments, any vehicle deduction (is car sales tax still deductible or was that a 2009 one shot deal?).
3. Repeat step 3 but without the laptop. This is fairly easy but there's edge cases where your purchase is partially on either side of a bracket.
4. Subtract 3 from 2, that's the savings.
posted by pwnguin at 4:52 PM on May 19, 2010
When I'm considering hypotheticals, I like to plug my expected taxes into TurboTax. Then you can easily add or remove a deduction and see its effect.
posted by jewzilla at 10:27 PM on May 20, 2010
posted by jewzilla at 10:27 PM on May 20, 2010
This thread is closed to new comments.
posted by bcwinters at 8:58 AM on May 19, 2010