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Tax deductions for new part time home based business. Purchased Equipment last year. How do I calculate?


I have a small part time photography business. Last year I had $10,000 deposited into a business account to start my own business. I purchased some very expensive equipment. during 2006. However I did no paid work. On last years return I stated no income and no deductions for my sole proprietor portion of the return. This year things seem a little more favorable. I actually have a booking for a job and my business is now fully liscensed. How do i factor in my expensive purchases from a prior year? Any advice will be appreciated. Thank you

You would capitalize your equipment and depreciate it over its useful life. Use its fair market value for depreciation purposes. Lets assume you bought equipment for $10,000 in 2006 used exclusively for business. The equipment has a useful life of 7 years. If you use an accelerated method of depreciation, you would write off the equipment over the next 7 years as follows:
2006 - $2,449 (24.49%)
2007 - $1,749 (17.49%)
2008 - $1,249 (12.49%)
2009 - $893 (8.93%)
2010 - $892 (8.92%)
2011 - $893 (8.93%)
2012 - $446 (4.46%)

If you had income in 2006, you would be able to elect Sec. 179 and expense the equipment in the same year. So if you had $15,000 net income in 2006, you would have been able to write-off the equipment of $10,000 and be left with a net income of $5,000.

Note that if you only used the equipment for 75% business use, you would only depreciate 75% of the cost of the equipment, or $7,500. Source(s): http://www.irs.gov/publications/p946/ch0...
Use turbo tax it will do the hard stuff for you.

I know that you can depreciate the equipment over a number of years, and that is what you will be doing in this case. Go to the help in Turbo TAx website for more help. www.turbotax.com
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