Deducting Your Computer.

• Author: SCHNEPPER, JEFF A.
• Position: Brief Article

IN THE NEW INTERNET ECONOMY, either you have a computer or you're left behind. Computers have brought libraries into the home and expanded the universe of available information. They allow individuals to do massive calculations in seconds, and e-mail has put people in direct and immediate contact with friends around the world--virtually for free!

My wife insists that her computer is a male--it's supposed to solve her problems, but half the time it is her problem. In order to get its attention, she has to turn it on; it has lots of data, but is still clueless; and, as soon as she commits to one, she realizes that, had she waited a little longer, she could have had a better model.

I insist that all computers must be female--no one but their creator understands their internal logic, and even your smallest mistakes are stored in long-term memory for later retrieval. Moreover, as soon as you commit to one, you find yourself spending half your paycheck on accessories for it, and you, too, realize that, if you had waited a little longer, you could have had a better model!

Masculine or feminine, computers are here to bring joy into our lives. Let me add to that joy. If structured correctly, computers--and all of their accessories--could also be tax deductions. Here's how:

If you are self-employed and use your computer in business, it's easy. Any computer or peripheral equipment that is utilized exclusively at a regular business establishment and owned or leased by the person operating the establishment is not "listed" property and can either be depreciated over a period of five years (20% the first year, then 32%, 19.20%, 11.52%, 11.52%, and 5.76% in the sixth year (I know I said five, but you only get part in the first year), or expensed under section 179.

Under this special election, you can expense as much as $24,000 (for 2001) in furniture or equipment used in a trade or business in the first year. This is instead of taking annual depreciation, and it allows you to accelerate your deduction and its tax benefit into the year you bought the property. The expense for your computer and any peripherals goes on your Schedule C and reduces not only your income tax, but your Medicare and potentially Social Security tax as well.

What if you are not self-employed, but use your computer in your business? Then, all of your allowed deductions are reflected on Form 2106 as employee business expenses. Here, however, you must keep track of the hours you...