Gary, capital limits on my equipment purchases and depreciation are always a concern. I try to purchase the maximum number of collectible guitars my playing income will justify and depreciate them over three years.

The individual has some flexibility about whether to treat a purchase as an asset subject to depreciation or as a straight cost of doing business...like, say a power adapter. A little common sense is in order, to be safe. The rule is, if it is used as an income generating asset and has a useful life of over one year, it can be depreciated over the life of the asset.

A keyboard generally has a life of more than one year. I'd be really careful about treating the purchase of one used to generate income as anything but a depreciating asset. And, I'm careful to be realistic about the length of time I choose to take the depreciation. Plus, when the depreciated asset is sold, you have to pay capital gains on the difference between the "book" or depreciated value of the asset and the sale price.

I just called an associate...an attorney who worked for the IRS and who is now the area's top tax attorney and outlined the issue we're talking about. He confirmed that, during an audit, the question of useful life is what determines how an expense/depreciation decision is made. He also asked about the purchase price of the keyboard and the general annual income of a player. When I gave him my estimate, he said that those numbers would raise some flags if treated as an ordinary expense item and charged off in one year.

I depreciate ALL equipment purchases over $500.00 with a useful life of over one year.

For me, that's both the sound business decision and the right to do from an ethical standpoint. I'll take EVERY deduction I feel is legal, but that's where it stops.


Russ

Paying Tax is very important..

The more tax you pay the higher your income, and when i realise that, i would not mind paying $2.000.000 a year to the tax department.

Next to that paying Tax is almost as important for my country as public service. The more tax we pay, the more wellfare and prosperrity in my country... and that kills crime rates all over the place and creates save neighbourhoods where children can play outside without the risk of being shot by accident.

I play 40% income tax.. and 19% sales tax, so half of what i make goes back to my country... You say thats a lot, i say thats what makes this copuntry a great place to live. I don't mind paying Tax as long as it is invested smart intoo my country, as long as everyone gets free schooling and Free health care. As long as the roads and bridges are in excellent state.

But i hate when my government throws away money without thinking...


So paying Tax is a duty....

My ultimate goal in life is to pay $1-million in income tax for a single year. Yep, that's a lot of money, but it will have been one Hell of a year!

Cheers,

Gary

Bachus, what country do you live in where the government spends your tax dollars wisely. A lot of us would like to move there .

Seriously though, I wasn't expecting anyone to take this thread seriously but I'm seeing some great responses with a lot of them containing some valuable information. By all means, if you have some info to share that might benefit the average working pro, post it. For instance, in my situation, except for a few holiday gigs, I rarely play more than 1 4hr gig a week which barely pays for my equipment costs. I have not asked for nor received a 1099 because it's such a small amount. I don't even mention this (or any expenses associated with it) on a tax form. I figure it's more of a hassle than it's worth. Am I doing the right thing? I don't know. I think of it more as either a really poor paying job or a mildly expensive hobby.

chas

Yes Taike, I understand not a single guy has tried to escape.



chas

Chas, if you had received 1099's you'd have to deal with the issue and declare the income.

You didn't get one, which is strange. because that means the club you play(ed) for is on shaky ground claiming your compensation as a legit expense.

You and I have the same problem....expenses which, in the eyes of the IRS, exceed normal levels. And that's a problem. How DARE they accuse us of buying more equipment than we really need? (And, deducting it) (LOL).

Russ

[This message has been edited by captain Russ (edited 04-13-2010).]

Chas it's funny you mention taxes and the Audya as just this morning I was thinking how I could ever afford one. I thought maybe of taking some money out of my Roth IRA. For those tax experts out there here's my question. What is the penalty for early withdrawl? Is it 10% of what you withdraw? any other penalties?

There is no penalty for early withdrawal if you're 59 1/2, but there may be a penalty if the investment is something like a Roth IRA C/D. the penalty comes from the financial institution. If it would help, you can withdraw funds and replace them in under 60 days, with no penalty. There is also a 5 year rule. you need to leave the Roth in place for 5 years or pay taxes on the withdrawal, I believe. Just ask your banker or go on-line to IRS.gov.


R.

Yep--5 years of pay the taxes, plus some early withdrawal penalties. Like Russ said, check with your banker.

Gary

I was under the impression you could take your investment out of a Roth any time you wanted to after 5 years. Just the earnings you could not remove. But the money you actually put in you could. Is that wrong?