I have a small part time photography business. Last year I had $10,000 deposited into a business account to start my own business. I purchased some very expensive equipment. during 2006. However I did no paid work. On last years return I stated no income and no deductions for my sole proprietor portion of the return. This year things seem a little more favorable. I actually have a booking for a job and my business is now fully liscensed. How do i factor in my expensive purchases from a prior year? Any advice will be appreciated. Thank you
October 12th, 2009 at 3:25 am
Use turbo tax it will do the hard stuff for you.
I know that you can depreciate the equipment over a number of years, and that is what you will be doing in this case. Go to the help in Turbo TAx website for more help. http://www.turbotax.com
October 12th, 2009 at 3:25 am
You would capitalize your equipment and depreciate it over its useful life. Use its fair market value for depreciation purposes. Lets assume you bought equipment for $10,000 in 2006 used exclusively for business. The equipment has a useful life of 7 years. If you use an accelerated method of depreciation, you would write off the equipment over the next 7 years as follows:
2006 – $2,449 (24.49%)
2007 – $1,749 (17.49%)
2008 – $1,249 (12.49%)
2009 – $893 (8.93%)
2010 – $892 (8.92%)
2011 – $893 (8.93%)
2012 – $446 (4.46%)
If you had income in 2006, you would be able to elect Sec. 179 and expense the equipment in the same year. So if you had $15,000 net income in 2006, you would have been able to write-off the equipment of $10,000 and be left with a net income of $5,000.
Note that if you only used the equipment for 75% business use, you would only depreciate 75% of the cost of the equipment, or $7,500.