andrew (04/10/83)
If you have a business in place, you can either depreciate your computer
over five years, or you can take off the entire cost up front. In the
depreciation case, you get a 10% investment credit off the bottom line
of your tax return the first year; this is not true in the up-front case.
For the 1982 taxable year, you can subtract the cost of new assets
(such as computers), up to a total of $5,000, on your schedule C. For
1983 this upper bound doubles to $10,000.
As to how to form a business so as to do this: you don't have to file
any forms with the local or state government if you (1) name the business
after yourself, ie, John Doe Consulting instead of CompuConsultants,
(2) don't incorporate, (3) don't hire any employees, and (4) if your
business is at your house, don't do anything to alter the residental
character of the neighborhood (eg, don't hang out a sign, don't have
clients to your house often, etc.)
As far as the IRS is concerned, a business must show a profit at least
two years out of five. (This was true five years ago, the numbers may
have changed.) In addition, you must have the appearance of a business,
ie, you are actually endeavoring to show a profit. If you do in fact
show a profit, that is considered sufficient evidence that you're a business,
not a hobby. If you don't show a profit, you'll have to justify your
claim that you're operating a business.
Some suggestions that have worked for me:
-- mail order software: write something that someone else might be
willing to pay money for. Take out an ad in a magazine. As the
money comes in, send out copies of the software. Some cities
require that if you do this in a home in the city you take out
a business license and submit to their regulations, but it usually
works fine if you're out in the county;
-- consulting: take odd jobs doing custom programming, systems
analysis, or bug-chasing for people with money. If your business
buys a computer, it should have something to do with your
consulting activity.
-- buy a word processor package for your computer and write articles;
try to sell them to magazines. The computer rags are growing fast
and are hungry for copy. A good place to start is the book
"19?? Writer's Market" (for the current year), which includes essays
on how to sell and gives information about the various magazines.
Here's a scam that will *not* work: an employee of a company with
time-sharing machines (Unices?) with dial-in access buys a modem, a
computer, and a program which makes the computer into a smart terminal,
claiming the lot as a deduction because it's needed for work. This will
only get past the IRS if the company required you, and all employees
in similar positions, to make this purchase, in which case it's an
employee-provided tool.
-- Andrew Klossner (decvax!tektronix!tekecs!andrew)