The computer you are using right now could qualify as a tax deduction, but it depends entirely on why and if you need a laptop to earn a living. While you might assume that using your laptop only for work would be an automatic deduction, that isn't always the case.
When you buy a laptop solely for personal use, like playing video games or chatting online, you cannot deduct it for income tax purposes The most common way to write off a laptop is to count it as a business expense. Even if you use the unit for business, it must be a requirement for your work or trade and must convenience your employer. If, for example, you buy a laptop to do work at home for your own convenience but not for the convenience of your employer, you cannot claim any of the cost as a deduction.
You can deduct the entire cost of a laptop if your employer requires it, but you may have to follow depreciation schedules. Depreciation schedules are a chart that assumes the value of an item decreases consistently over time. If you use your laptop for work 50 per cent or more of the time, you can take an extended depreciation over five years. This allows you to deduct the value of the laptop over time. If, for instance, you purchased a £650 laptop, you would deduct £130 each year over five years. For less than 50 per cent, you must take the entire deduction the year you buy it -- called a section 179 deduction -- and you can only claim it if the cost exceeds two per cent of your income.
Use to Produce Income
If you use your laptop to "produce income" like managing investments or tracking rental income, you can write off a portion of the cost of a laptop and any maintenance using the same rules as an employee. However, you cannot use the section 179 deduction. In this case, only the portion of the time you use the computer to produce income counts. If, for instance, you spend 40 per cent of your time on the computer investing and 20 per cent on tax planning, you could deduct 60 per cent of the cost of the laptop.
Home Office Deduction
The self-employed or those who operate mainly out of a home office, like certain sales professionals, may qualify for a home office deduction. This includes any expenses related to the office like a laptop and Internet connection. The same rules apply as for an employee, but you don't need to meet the 2 per cent of income rule. However, if you use your laptop for both business and personal use, you can deduct only the business portion. Thus, you should have a dedicated laptop for business if you take the home office deduction to eliminate record keeping and suspicion of the IRS.
Tip for Students
Section 529 savings plans, also called college savings plans, consider laptops a qualified educational expense and allow you to withdraw money penalty-free to pay for it. However, the IRS does not consider laptops a qualified expense for education credits, like the Life Time Learning Credit. So it is important for students to check the rules.
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