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Maintain tax breaks by limiting access to your home PC

by on
in Small Business Tax,Small Business Tax Deduction Strategies

The personal computer (PC) has become part of the average American household. But if you’re self-employed and you use your PC extensively for business, you can lose valuable depreciation deductions by allowing family members to use it.

Strategy: Keep the PC strictly for business use. Then, you can parlay the tax savings into another computer for the rest of the family. You will often come out ahead tax wise, plus you get an extra PC out of the deal.

This tax move will also help you preserve annual home-office deductions.

Here are the details: As a general rule, your depreciation deductions are limited if you use your PC for business less than 50 percent of its total use. For starters, you can’t use accelerated depreciation (including deductions claimed in future years).You may even have to recapture tax benefits during a year that your business use drops below 50 percent.

Finally, you can’t take advantage of the Section179 election for current write-offs. (The maximum Section 179 allowance for 2006 is $108,000.)

These tough rules don’t apply to a computer at a “regular business establishment,” such as a company’s main office. And, if you’re self-employed, your deductible home office qualifies as a regular business establishment.

The catch: If you allow family members to use your PC, the home office no longer qualifies as being used exclusively for business. So, not only are you risking tax write-offs for your PC, you’re also jeopardizing your home-office deductions.

On the other hand, if you use your PC 100 percent for business, your home-office deductions are secure. Best of all, you can write off the entire cost of the computer this year and use the tax savings to buy a second computer … with plenty to spare.

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