A tax question

If I made a tax-deductible purchase in 2009 on a credit card that doesn't need to be paid until 2010 do I have discretion on what year I make the deduction or does it have to be 2009?

I made a lot of purchases this year, and I don't expect to make many next year, and I would like to carry over some of my deductions to next year.

Beakybird

You can only use the deduction in the year it is paid.

I'm not sure about your second question, but I don't believe you can carry over the deductions without placing them on a depreciation schedule. Some purchases, particularly the larger ones, can be put on a depreciation schedule, which allows you to use the deductions over a specific time frame. However, this usually applies to major purchases such as a vehicle or building.

If you use Turbo Tax to do your income tax you will find this information in the program.

Good Luck,

Gary

Larry,

One thing I forgot about for next year is you can get a major deduction by setting up a retirement account. Essentially, you'll be paying yourself and getting a tax deduction in the process. The amount you can place into retirement will depend upon your age at the time of the contribution.

Good Luck,

Gary

That's what we ALL say until the next 'must have' piece of kit comes out...

Gary is right. Depending on the size of the purchase, you can depreciate the amount; usually over three years. There are various depreciation methods (eg. straight-line, sum of the years didgets, accelerated, etc.).

The depreciation legality really has nothing to do with the financing scheme, except that you can depreciate the TOTAL cost, including interest.

You can depreciate a piano over thrre years, for instance, even though it takes you five years to pay for it.

Of course, once you depreciate an asset, you have to pay capital gains tax when you sell it. The tax is on the difference between the book value of the asset after it is depreciated and the sale price. That's a major consideration for me with the guitars in my collection, which all are eventually are depreciated to zero.

Working musicians need to be familiar with the tax laws that apply to the way you've set-up your business (Proprietorship, Incorporation, LLC, etc.).

Turbo Tax is good, but, in my mind, at least, if you're generating significant revenue, a CPA is better.


Russ

Thanks for the reply. So I will consider depreciating some of the assets so that I can carry part of the deduction into other years.

OK, so my question about capital gains on selling something is ... because there's a lot of confusing stuff in there like "basis," depreciation, etc.

What if you take that section 263 (or whatever the # is) discount - you don't depreciate - you write off the whole thing, and then you sell it two years later.

I buy a keyboard for $1500. I write off all $1500 with the section 263 discount (or whatever the # is). I sell it three years later for $1000 but there are $100 in fees including shipping. You pay capitol gains on $900 now, right? or wrong?

Beakybird

Right. Actually, you pay capital gains tax on the $1000.00 and deduct 100% of the cost of the sale as a cost of doing business.

"Basis" is base amount used to figure capital gains. For instance, the basis for personally held stock is the original purchase price. You pay capital gains on the difference between the purchase price and the selling price when it's sold or traded. In the case of a depreciated asset, the basis is the depreciated value of the asset when it is liquidated.

The basis on inherited property is the value of the asset when it is inherited. Say you inherit stock from a family member that had origionally cost $50 and is now worth $1000.00. The basis when the relative was alive and was still the owner of the stock
would have been $50.00, and capital gains tax would have been owed on $950.00 in gains if the asset were sold by the relative.

The basis becomes $1000.00, or the fair market value at the time of the inheritance for you, the new owner. You would owe capital gains tax on the difference between $1000.00 and the selling price when traded or sold.

Gets a little hairy. Ya gotta love "Uncle Sam".


Russ

[This message has been edited by captain Russ (edited 11-17-2009).]