You may have heard that the new tax reform law eliminates tax deductions for un-reimbursed employee business expenses beginning in 2018 (the taxes you file in 2019). If you own your own business, however, you can still deduct business expenses in 2018.
So what high-tech toys (oops, excuse me, necessary work-related devices) can you deduct? Here are the rules.
Cell phone. If you use your cell phone exclusively for business, then the cost of the phone equipment and the cost of the monthly service are both tax deductible. If you use the phone partly for business, well – you can do the math. Use it 50% for business and 50% for personal, you can deduct half of the costs.
Computers, laptops, notebooks, tablets. Your business expenses must be necessary, customary and reasonable, according to the IRS. That means that you have to have a business use for your computer or iPad. If you work in the computer industry, this is a no-brainer, but if you are a hairdresser, be prepared to show that you need the device for ordering supplies, keeping track of receipts and expenses, etc. If that use requires you to be connected to the internet, then the cost of connectivity will also be deductible, but if your kids use the same device to do their homework and play video games (or you do), then only the business portion of the costs will be deductible.
Internet usage. If you work while on airplanes or in hotels, and you pay for internet connectivity in the air or at the place of lodging, that cost is tax deductible if it is related to business activities.
Software. Here’s the bad news first: the latest gaming software doesn’t qualify for a deduction unless you are in the gaming industry and need it for work. But if you buy Quickbooks Self-Employed to keep track of your business income and expenses and TurboTax to prepare your self-employed tax return, those expenses will probably qualify. It is likely that the standard office suite programs for word processing and spreadsheets will as well. Of course, if the software has both business and personal usage, you may not be able to deduct the full cost.
Now or later? You can deduct the full amount of the gadget in the year it was acquired under IRC Sec. 179, or you can amortize it over a number of years (generally 5 – 7 years), deducting a fraction of the cost each year. Most people opt to deduct it all at once.
Under the new tax reform law, you can deduct up to $1,000,000 for qualified business equipment, up from the 2017 Section 179 amount of $510,000. Examples of qualified business equipment are computers, computer software, office furniture, and equipment. Six-passenger SUVs less than 14,000 lbs used for business may qualify for up to a $25,000 deduction.
Don’t worry about knowing about these tax deductions when you file. You can use QuickBooks Self-Employed to easily track your business income and expenses year-round and then export your information directly to TurboTax Self-Employed to make filing your taxes easy at tax-time.