Audio tax write-off


Hello,

I have a company that produces documentaries and podcasts on personal and commercial histories. I have needed to acquire computer equipment to do my work, and I've borrowed some equipment from my 2-channel system, such as headphones, as well. My question is, do any of you write off home audio audio acquisitions for your business? Do you know the tax rules on this? Does it have to be branded  as "pro" gear to qualify? Thinking I need a better DAC and studio monitors. If I bought a component called "Schiit," would the tax auditor go "nnnnnnnnnnoooooo?" 

Thanks for your input.

Paul


paulburnett
I'm retired now, but I used to have a home office. I wrote off everything that I bought for the office, including a computer, printer, phones, business-related books, various publications, and even a small sound system for the office. This was legit, as this space was designed as, and only used as, a "home office." If it were ever questioned in an audit, there is no question that it would have passed muster. Take pictures of your workspace just in case, as Ceasar, if you are audited, will want to see proof of anything you claim on your annual financial confession.  

Frank
I highly recommend against accepting any tax advice you receive here.  You should look at depreciation of said equipment and be aware that if you are using this equipment for personal use as well, there can be a huge effect.  It also makes a difference if your company is a sole proprietorship, partnership, corporation, llc ...

There is not a simple answer to your question, but some self education or a paid tax professional is in order.

Good luck.
Any CPA's in the audience? 
If you need better equipment for professional work I would stick with pro gear. Something like RME or Mytek for a DAC , Genelec for monitors. It doesn't need to be labeled "pro" for tax purposes , keep good records so you have a paper trail.
If the equipment is used in an office located at a business it is not a problem. You can write it off. But, if you sell it down the line the sale will be subject to capital gains tax.
If the equipment is used at home, office or not you are asking for it. Home offices are always a red flag to the IRS and you absolutely have to go over this with your accountant to make sure you have crossed all your T's
Ask a CPA, tax attorney or tax authority if these types of acquisitions are expendable supply or capital assets. You should of made these decisions when you set up your business what $$ amount is considered expendable supply? 
I'm not a CPA, but I did retire as a Tax Law Specialist from the IRS and trained accountants and tax preparers; I addressed this particular issue hundreds of times.  

As I mentioned above, it must first be determined what sort of tax entity you are:  sole prop, corp, etc...

Frank jumped to the conclusion that you are a sole proprietor and gave you some off-the -cuff information.

Any free advice you receive here is probably worth what you paid for it.
djones,  as I mentioned above, we're talking about assets that have a useful life expectancy of greater than 1 year and are depreciable assets, not supplies.  They maybe be deductible as capital assets, subject to the depreciation rules,  In some cases they may be deducted in full as section 179 expense, but these rules are not simple and cannot  be addressed here, in my opinion.
Sale of depreciable assets in a business is generally not capital gains tax, but can be taxable as recapture of a depreciable asset.

From investopedia:

Depreciation recapture is the gain realized by the sale of depreciable capital property that must be reported as ordinary income for tax purposes. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis
Life expectancy is half of it cost applies as well. Depends how the business is set up. To many variables we don't know. 
For instance we report computers as an expendable asset if they cost under $5000. Life expectancy isn't the only variable in the equation. 
djones,

I'm not sure where you got the $5000.  Please explain?
It’s what we set as the capital assets threshold, if it cost $5000 or more life expectancy more than a year it's depreciated,  under it's expense in that year.
You can't only use life expectancy, a stapler last more than a year, that's why you use  a capital threshold. This is basic stuff. 
You don't set a dollar threshold.  Whether it cost $1,000 or $20,000, it is still subject to the rules of depreciation and is not an expendable asset.  You may be confusing an expendable asset with a section 179 deduction.
You’re right as far as you go. Define capital assets? It’s life expectancy and cost there has to be a cost threshold or like I said we would be depreciating staplers and ink pens.
An auditor would turn his or her head if you expensed a stapler, because it most likely would be deductible as a 179 deduction anyway.  A $5,000 dollar computer.  No.  This is basic stuff.

IRS publication 946, page 3:

You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software. To be depreciable, the property must meet all the following requirements. • It must be property you own. • It must be used in your business or income-producing activity. • It must have a determinable useful life. • It must be expected to last more than 1 year. The following discussions provide information about these requirements.

The section 179 discussion  begins on page 15.  If after reading that, you have further questions, don't hesitate to ask.
Wow, thank you for all of this input. I assumed that my situation was fairly unique, and therefore I plan to consult my accountant about the tax details. It's an LLC with just yours truly as its owner and employee. I have a dedicated home office space that also happens to contain my stereo.  I say "happens" because I use all the sound absorption paneling when recording narration and conducting some of my interviews. It also contains my A/V editing system, which currently has headphones or laptop speakers as the audio out, and I am considering acquiring monitors for that purpose and perhaps an outboard DAC. The consensus seems to be that to write such off is fine so long as you are using the equipment for stated purpose and my home office setup gibes with the tax rules for my particular corporation. I have friends in Canada who write off their stereo systems because they run a record label. A reference system, multiple systems in fact, are a totally legitimate expense there. For my part, sound quality and balance is absolutely a feature of my products, so I would be making that case. Just curious if others had done the same. To be clear, I am not trying to cheat. But I would feel ridiculous if I had to shift my whole stereo out of that room because it might be perceived by an auditor as not being a home office, especially when my work is A/V recording and editing. 

Yes talk to your tax guy or gal it looks like it's a business expense.
Abnerjack, what I'm talking about is WE set the threshold for what WE will depreciate and WE do not depreciate any item that costs $5000 or under. 
paulburnett,

Forget what they do in Canada.  For your question to be answered it would involved quite a bit of fact finding.  The IRS does not recognize an LLC as a taxable entity.  You have to choose how it is be taxed per the tax rules for sole proprietor, regular "C" corporation, or an S corporation.  This is much beyond any quick answer you will recieve here, so please ignore any such answers.  If you want to message me privately, I can point you to some resources (not me, I learned to hate tax law) such as 
SCORE or others.  Good luck.
abnerjack ...

I fully understand why you ended up hating tax law.

The U.S. tax code consists of over 70,000 pages and contains over nine million words. It is in constant flux. Five different CPAs can come up with five different answers to the same question. Even the IRS is not liable for any advice they give the taxpayer.

My conclusion was always ... If I buy it for business, use it solely for business, then it is a business write-off. Admittedly, I did take advantage of every opportunity available to me in the tax code, which I believed to be my patriotic duty.

I was audited one time. The auditor was a very nice man whose name was "Theodore."

After going through everything on my tax return, "Theodore" nailed me for my cell phone expenses. I had written off 90% of my phone use as a business expense on my Schedule "C" form. I freely admitted to "Theodore" that 90% was an estimate, but an accurate one.

"Theodore" was kind enough to point out that I had failed to keep an IRS required phone log of every call I had made. He said that if I wanted to write off cell phone expenses, I am expected to keep track of each call ... from the time the client answers the call to the time the call is completed, with dates, times, names of the clients, etc.

"Theodore" allowed 10% of the phone expenses, and gave me a bill for the rest, which I paid right away.

Hear this ... Ceasar insists that all financial confessions are to be in minute detail, so don’t mess it up. Quite frankly, I think a prudent question would be ... why do Americans continue to put up with this?

Disclosure: I’ve been retired for a few years now and no longer run a business. So, don’t take any advice from me. Chances are, there’s been a multitude of changes made since then.

Frank
I am an s-Corp with a home office. I write off all my electronics. My accountant thinks I don’t take nearly enough deductions. He’s  very aggressive, I’m cautious. It depends how you’re set up. 
There’s a lot of if’s involved with the whole home office and taxes.  You can deduct part of your rent, utilities if you have a dedicated office , a room used for nothing else.  Example, I have a six room house and I use a bedroom for nothing but my work, I can deduct 1/6th of the cost of your home bills.  As far as headphones or computers, you can deduct or amortize the full value, but you have to have receipts and have a good story about how they are used for nothing else. As far as cellphones,  your provider keeps track of every call and text. Verizon has it as a downloadable PDF.  IRS Form 2106 is what you want to check out.

All the best

JD
I used to write off some of the equipment when I was an active musician...now, I just pay.
I do it, "studio equipment" expense, which is not a lie actually. Don't use the word "vintage" or "used" anywhere though as that won't pass in an audit. It has to be new kit to be valid in eyes of the man.
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You own a company and have an accountant. What is the point of asking on this forum?

You know how the IRS bites people who deduct listed (business) property while using them for personal reasons? They ask to see your record books documenting how you used the items for business. I own a business and the last thing I even think about is mixing personal stuff with business property. Too much record keeping to make it worthwhile (my time is valuable).

Get an accountant and don't listen to anyone here. Including myself.

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A tiny two cents worth:
If the home office is a shared space, ie. work time and music enjoyment time, apportion the deduction based on a percentage of work usage➗ Total usage. The time used for work in a shared space determines how much you can legitimately deduct. The decision on whether or not to pursue the deduction is another question...
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gs5556
You own a company and have an accountant. What is the point of asking on this forum? ... Get an accountant and don't listen to anyone here. Including myself.
Excellent counsel. There is much misinformation in this thread.
If Trump only has to pay $750 in tax for 2 years, then I feel it is only right to be able to write off a $10,000 pair of speaker cables. Remember, they make the sound better!
I am NOT Donald J. Trump, but I approved this message anyhoo.
@gs5556 I think I made a mistake in asking for tax advice. This is a fun audio forum. I don't want people to feel resentful about a bummer topic, or that I am trying to get something for free. I was genuinely curious about what other people, who have audio equipment imbricated in their professional lives, do at tax time. I did not assume that situations would be directly comparable, and I know that the tax systems are different in Canada.  A bit regretful I brought it up. I do appreciate the general advice and the time people took. Thank you. 

@scowler1 Here's the sad truth: Home office use as office = 99.5%. Fun listening to my system in that office, after hours, as it were = .5%   So perhaps that's the more fundamental problem to address.  

Happy listening everyone!

Paul
As a former show horse owner, I can tell you to be careful about the division between your business and your hobby. If you want to write off your audio equipment for business use, that’s OK as long as you show a profit using that audio gear in 2 of every 7 years.
At least that’s the way it used to be.
Yes I do especially now as I am editing and ding audio dubs at the home as office is a no go
For the 21 years I had my business I did not write off the "office in the home", though it was 100% legit, as it would have figured into the "basis" when calculating the capital gains on my home and its equity.

Having said that, I did write off the purchases I made for business purposes, like computers, monitors, printers and supplies.  As well I wrote off a portion of my internet and cell phone bills.

The one thing I didn't do was to have a "company car", as my CPA advised that it was a "red flag" if I claimed over 25% as a "consultant", so instead I logged my business mileage and wrote the actual miles at the rates for those years according to the IRS standards.

It sounds like the items you are asking about for your taxes are "legit".  But I'd say it's best to bounce that off your tax advisor.
Another important consideration:
The home office tax write-off is not available to employees of companies.  If you're an independent contractor, gig worker or the business owner, you're good to go.
If you're just an "employee" of someone else who regularly works from home, trump's 2018 tax cut took that deduction away from you.  At least through 2025.
Writing off equipment as a business expense can involve more than the IRS.  Where I live, the county taxes business assets.  As such, the "good deal" of writing something off can cost a lot of money in the long run through additional local taxes unless the equipment is regularly upgraded and replaced.  That's why many of the local machine shops lease the majority of their equipment - it's always an expense and deductible, the equipment is repaired by the lease company, and the shop upgrades the equipment at the end of the lease.
Just ask Trump. He’s an expert at squeezing deductions.
ask your tax guy or get one Dog.   Don't do it here you will get 132 answers none true   or   just off   
The IRS engorcement budget is tiny and has been shrinking.  Roll the dice, let us know how it comes out.
Hey Paul I’m filmmaker myself and have literally tons of production, post production (full Advanced Resolve system) and audio playback and recording gear.

feel free to check me out 

TriodePictures.com


Have one of your minor children set up a 501(c)(3) charity and purchase the equipment, then lease that equipment.  Elect to be taxed like a C Corp, or better yet set up an S Corp with a management contract for your LLC and pay management fees to the S Corp to minimize LLC profits and dividend most earnings out of the S Corporation rather than pay FICA.  Voila!  You can probably save $10k per year and it will only cost you $10k-$30k to set that all up!