While the Trump Tax Reform eliminates a lot of deductions (yes, you can no longer claim them), but don’t be disheartened yet. It’s not entirely bad – the federal tax reform allows you to claim deductions elsewhere. And work-related devices fall under this category!
Let’s have a look at all the tech devices that are eligible for tax deductions under the federal tax reform:
Business owners who have a mobile phone dedicated solely for business purposes are allowed to deduct the cost of the mobile device as well as the monthly service costs for the same. However, for the business owners who use a mobile device partly for business purposes and partly for personal usage, the math is pretty simple – they can only deduct the business-related expenses. Hence, make sure that you maintain your itemized phone bill along with other relevant receipts. This will help you determine what amount you should deduct.
Laptops, PCs, Tablets, and Notebooks
According to the IRS, an individual’s business expenses must be both customary and necessary to be eligible for tax deduction. Nowadays, most businesses use PCs, laptops, or tablets to manage and organize the day-to-day business operations. While the IRS does allow business owners to deduct the costs related to these devices and gadgets, it must be noted that these are only eligible for tax deductions if they are solely used for business purposes. So, if you are in the tech biz or the IT business, the use of PCs and laptops is a given, but if you are a store owner or a hair salon owner, you need to be able to show proof that you need these devices for managing your business such as managing financial transactions, ordering supplies, and so on.
Apart from writing off gadget expenses, you can also claim tax deductions on:
Yes, the IRS allows business owners to deduct the software related expenses, provided they are “necessary” for business and not for your own personal entertainment. Thus, gaming software is out of the question unless you are a professional gaming developer. Useful business software like MS Word or spreadsheets or any standard office suite programs, for that matter, will qualify for tax deduction.
Internet Usage Expenses
Business owners who have to rely on the Internet for managing a significant portion of their business are allowed to deduct the Internet usage costs. Also, if a business owner has to work on the Internet during a business trip or pay for the Internet connectivity while staying at a hotel or a lodge, he/she is allowed to deduct these expenses.
Word of Advice – Should You Claim A 100%?
The federal tax reform allows business owners to claim tax deductions for gadgets and other equipment under IRC Sec. 179, either in the year of the purchase or by amortizing it for a certain period (generally 5-7 years). Under the second option, you can deduct a fraction of cost for each business year. Raising the tax deduction ceiling from $510,000 in 2017, the new tax reform law allows deductions up to $1,000,000 for all the eligible business equipment.
Although business owners are now increasingly relying on gadgets and other technology to make their work easier and optimized, these gadgets are not always used solely for business purposes. For instance, a business owner who owns a laptop or a PC for work might sometimes log in to his personal email account to check personal emails and stuff. It is completely natural.
The trick here is to claim deductions only for the expenses that are purely business-oriented. It is never wise to claim a full 100% of costs related to business devices. Another thing that greatly helps while opting for tech deduction is to maintain good books all year round. Doing so allows you to keep track of all the business-related expenses, however small it may be, and helps you understand what you can deduct and what you cannot.
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