Hola, my friends. In this issue, we will talk about depreciation. That's certainly gettin' right in to it! Depreciation is the procedure by which you can reduce your taxable income (it's a beautiful thing), by taking a tax deduction for the purchase and use of equipment used in your business, including your job.
Although we all have stereos, cassette and compact disc players, video-tape recorders, speakers, camera equipment, etc. for recreational use, they are also tools of your trade. Square Sol and his stiff doll can't write this stuff off, by you can! With the constant development of new technology, and new software and hardware coming out with regularity, I'm sure that many of you find it incumbent to keep pace with the industry, by upgrading. And guess what? What you may think is just a sexy new addition to the family room, where you keep your entertainment center, is probably a tax deduction. That's right, amigos. Listen to Raoul, I chit you not!
To say merely that you people are in the "sound" business is a simplistic view of what broadcast production is all about. On a broader scale, you folks are in the image/communication industry. Naturally, this requires you to maintain state of the art capabilities, which can be costly. Your deductions are not limited to equipment that is used exclusively in your work. To paraphrase the tax law, "...incidental use of a business asset for personal purposes, does not negate its eligibility for a tax deduction...". Don't forget, to convey a concept in sound, you must first be able to hear. Raoul said that.
So listen up, gringos y gringas. You can't write this stuff off if you steal it, or if it falls off the truck into the trunk of your ride. So, keep records and receipts. Now, if you have never done this before, did not keep records, don't know where to start, you've come to the right place. A good place to start is with an inventory of what you got. Actually walk your way through the equipment that you've accumulated and make a list of dates acquired, description, model numbers, and naturally, the cost. You may find that it really gets up there.
Did not keep a receipt, you say? Couldn't prove you have it? Wrong chimichanga-breath! If it comes down to having to prove it, which is against the odds, you do have some alternatives to hard documentation. For instance, you can take a picture of the equipment, or you still may have the operator's instruction manual.
If you have never written off your equipment in the past, you are not up the Brazos. Using the inventory I mentioned above as your starting point, you can set up your equipment and begin to depreciate it beginning with the current tax year. The only limiting rule is that you are allowed by the IRS "what is allowed or allowable." What this means is, you cannot take the deductions for annual amounts of depreciation that you would have written off in prior years. This is no big deal. Even if you have given up on some of your deduction, it's good to get started and on the right track. And, if the numbers are big enough in past years, it is always possible to amend (re-file) a tax return for an open year and recover your tax savings. Lack of knowledge is a valid reason to correct a tax return for a prior year. And remember that it works both ways.
Depreciation is one of the most complicated aspects of the tax law. There are numerous methods and procedures which apply, depending on many varying factors. Additionally, you do not have to be generating outside production income to avail yourselves of the deduction. In certain situations, a salaried person can realize the same tax savings as someone in business. It applies the same to the little guys as it does to Fortune 500 companies. And if you think that Raoul has left you with more questions than answers, you are correctomundo.
Next month, you can look forward to Raoul discussing, with a little more technical detail, some of the actual methods and mechanics of the depreciation deduction. If I am able to help you understand a few things such as, where to put it, how to do it, and when, then I will be pleased. So, until next time, I hope it was as good for you, as it was for me.