Tips or lessons learned on writing-off/amortizing recording gear

coloradojay

New member
OK, I'm ready to admit that it's an addiction now (only 11 more steps right?) My gear habit is totally out of control, so I've decided that my best bet is to register a trade-name and start making my gear purchases part of a "recording studio" business.

I wanted to start a thread about this because I'd bet that I'm not the only one who hangs out here, who currently isn't getting a tax break for thier gear addiction.

I know we've certainly got a few pros here who do this full-time, as their whole income and are profitable, but I'm really more curious about the hobbyists who are getting a break from Uncle Sam to equip your studios.

Do you write off part of your expense of your home/apartment, as your place of business?

Is your studio currently profitable (on your profit/loss from a business statement)?

How long can you run a money-losing business (meaning that it's making money but you are still spending more than that on gear) before the IRS won't allow the write-off anymore?

Any tips about what method of amortization is best?

Any thing special to know about the recording business in general in terms of taxes?

...and a couple of questions that I'll be double-checking with an accountant very soon, but thought I'd throw out there.

Do I need to register my trade-name before buying the next wave of gear, or can I get away with using reciepts from the last year retro-actively, this tax year, as investments that were necessary to get started?

If I get laid off, would owning a non-profitable business effect my ability to collect unemployment? (I work in tech, and you never know, so I'm not sure that risking unemployment would even be worth the write-off for equipment)


Thanks in advance for any advice or experience you have to share.

-J
 
Yo Jay of the "Rockies:"

I'm not a lawyer but I've published textbooks and could write off most of my PC as it was used in the writing process.

Of course, I go to a professional for guidance.

As I recall about starting a business, and I'm not sure if the law has changed, you can start your studio and write off your gear. You have 5 years to operate at a loss -- after that, the IRS will want to look you over. If you have a "day" job, that helps out as you are paying taxes.

So, if you can show some income from your studio, that's fine -- if not, you have 5 years to buy and write off gear. I don't know if you can write off 100% but if you are operating a business, you might.

I'd pay the meter and see a CPA; they a bit less expensive than a tax attorney.

Good luck.

Green Hornet:D :p :D
 
re: 5 years - sorta.

The deal is (or was - may have changed) that if you show a loss for the first 3 years, IRS may require you to sign a waiver extending the statute of limitations, to allow the business/not-a-business determination to take place at the 5-year mark --- so that they can disallow all 5 years of losses, if that's appropriate. If you don't waive, then they disallow NOW.

So yeah, you get 5 years to show a profit, but if you don't, you might wind up paying back all the taxes you saved, plus interest.

Daf (former IRS guy)
 
I should also add that I'm not doing this strictly to save a buck, but because at this point I've already got some interest from a few people who would be willing to pay to record with me, and I've got to justify blowing all of this money on equipment somehow, right?

I think that I could probably bring in a few bucks here and there, but am not sure that I'd ever be able to reach the "profitable" status, especially with the cost of new gear.
 
i am going to start doing my taxes this way this year as well.

anyone know how to make a receipt from an ebay purchase, do you just print it out?

keep the advice a commin.

my current plan is just to buy mac-in-tax at the year end and have the program do it for me. my brother does freelance graphic design and he swears by it... anyone try both doing it themselves with a nifty program and hiring an accountant?
 
Have a business plan...go to the SBA website and learn what you can, lots of free info at their site. The one danger is that you need to make sure you only spend a certain amount of your profit in gear aquisition. If the IRS finds that you spent more on gear than you made then alot of the times you won't get diddly for write offs. I just got my biz license and now Im working on a plan to grow to a set limit and then save about 20 percent of everything I make...thats after operating costs are figured in. Ive worked in studios where I didn't have to worry, but now I have to do it myself. Oh well.

Good Luck...

SoMm
 
Best advice: Find a good accountant.

With the new tax laws passed in 2003, the section 179 deduction allowed went from $25,000 to $100,000. You could take your entire deduction for many pieces of equipment now, but sitting down with an accountant and going over your business plan would help you a lot. For example, maybe you already have other loses or little income this year, so you don't need as many deductions right now. It could be better to save them for 2-3 years down the road when you're showing profits and need something to balance them out.
 
Thanks for starting this thread. I was just thinking about this the other day. I'm in the same boat, with some potential clients for small projects that won't generate a lot of income but enough to buy some more gear with. Since all my recording so far has been for my church my accountant told me last year I could take a deduction as a non-cash charitable contribution, but that kinda scares me since I still have possession of the equipment.

I'm all ears to what everyone has to say!!

Darryl.....
 
The best advice so far is to see an accountant.

However, a lot of accountants don't know diddly about deductions like these, so make sure you see someone who has expertise in this area. Like forget H&R Block or any of the Taxes-R-Us type places. Not sure I'd trust Mac-In-Tax or any other generic software to do the job correctly either.

Basically, unless you really are attempting to start a viable business, it sounds like you're trying to get deductions for a hobby. I don't think the IRS likes that very much. Just because you make a few bucks here or there from your studio doesn't necessarily mean it's any different than a hobby, at least for tax purposes. A lot of people make some pocket money off their hobbies.

So just make sure you have an expert set you up, or you may have some unpleasant surprises down the road.
 
My understanding is that the tax benefits can only be applied against income earned by the business. So really the only reason you would want to claim your gear as expenses is if you need to counter any income that your are planning on claiming.

I have had a 'home office' for a few years now and I deduct all my computer expenses against my regular income. I'd probably get screwed if I got audited now since my current job doesn't really require any work from home.

Until you start making money and plan on claiming it I don't really see the point in the extra paperwork and hassle. If you can pass of your gear purchases as equipment needed for your regular job then you can really save money.
 
I asked my accountant this very question before I dropped $2500 on my Korg TS.

He said the only way I could claim it as a business expense is if I had business income this year from usage of the item. I'm not sure whether or not it matters if you have a net loss or gain from the business, just so long as you show legitimate business income.

It's worth it to have an accountant - they may charge you $100-150, but they will surely discover deductions you haven't been taking advantage of. , secondly, that expense itself is deductable.
You can then ask as many questions as you want.
 
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