Can I Deduct Business Equipment Costs?

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Can I Deduct Business Equipment Costs?

If you’re self-employed, you have to purchase your own equipment, often at great expense. Thankfully, you can deduct business equipment costs on your taxes. Let’s go over the rules.

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Deducting Business Equipment Costs on Taxes

You can deduct the cost of the equipment you buy for your business. Let’s say you’re a professional photographer, you could deduct the cost of your cameras.

There are several different ways to take this deduction:

  • You can deduct the cost a little at a time over a process called depreciation.
  • You can deduct the entire cost in a single year using a provision of the tax code called Section 179. You can use this deduction only if you use the property more than 50 percent of time for business each year. There is an annual limit on this deduction, currently it is $1,000,000.

Deducting Business Equipment Costs Over Time

Most business owners want to deduct as much as possible the first year they buy equipment, instead of deducting a portion of the cost over many years. Thus, you’ll probably want to use Section 179 or the de minimis safe harbor.

If you use the photography equipment both for your business and for personal use, you may only deduct the business use percentage. For example, if you use a $500 camera 75 percent of the time for business, and 25 percent for personal use, your deduction is $375.

Photography equipment falls within a special tax category called “listed property.” The IRS fears that taxpayers might use listed property items for personal reasons but claim business deductions for them. For this reason, you’re required to document your business use of listed property. You can satisfy this requirement by keeping a logbook or similar record showing when and how the property is used.

For more information about deducting business equipment, Section 179, and the de minimis safe harbor, see IRS Publication 946, How to Depreciate Property.

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Stephen Fishman

Stephen Fishman

Stephen Fishman is a self-employed tax expert and regular contributor to MileIQ. He has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for entrepreneurs, independent contractors, freelancers and other self-employed people. He is the author of over 20 books and hundreds of articles, and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Visit Fishman Law and Tax Files for more information on his work.
Stephen Fishman

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.