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From the August 1989 issue of Radio And Production
Raoul The Taxman
Hola, mis amigos en radio y produccione! Last time we talked about
depreciation, remember? It is basically the concept of telling the I.R. of
S. that the chit you got ain't no good anymore, so you gonna go out and get
some new chit; and, since you use it in your business, you're gonna write it
all off.
On the average tax return filed by an individual, there are pretty much
dos (2) places where we find depreciation. The reason we find it there is
because that's where you are supposed to put it! They are 1) as a Schedule
A, Miscellaneous Itemized Deduction, or 2) on Schedule C: Profit or Loss
from Business or Profession.
Uno: Schedule A - Itemized Deductions. This is the form on which you
record your medical expenses, taxes, interest, contributions, and other
stuff like that, including your job expenses and depreciation. Now, the
problem with this form is that if you are single, all this stuff must exceed
$3,000 ($5,000 if you're married); they give you that much. Most of the
time, in order to have enough itemized deductions to use this form, you have
to have either a mortgage, or cancer with no health insurance. So if this
ain't you, you might as well stop wasting your time and dump this form.
However, you may still have a shot with numero dos.
Dos: Schedule C - Business Profit or Loss. If you generate some outside
produccione income from your services, this is the form you use; and, also
where you reflect your depreciation write off--Other business deductions
also. Now, I know some of you slick Willies out there scam that outside
income and don't report it. You say, "what the hell." Well I say, "What the
hell, man! You are missing the boat!" Sometimes it's better to re-port that
income, take all your deductions, and maybe even wind up with a "tax loss".
Those are two words that, when used together, make my loins tingle and vital
juices flow! But that is another column in another magazine. Back to
depreciation.
Now, there are 2 basic ways to deduct depreciation: Over a 5 year period
or all at once. The 5-year method is called MACRS, mainly to confuse you.
There are standard amounts for each year according to I.R.S. tables (which
are closely held secrets). For instance, the depreciation expense for years
1 and 2 on a piece of equipment is 20% and 32% respectively. If I make it to
1991, I'll give you the figures for the rest of the years.
The "all at once" method is called section 179, and your guess is as good
as mine as to why. This is an election if you so choose to forego the 5-year
plan and expense the entire amount (up to $10,000) in the year acquired.
But, if your freelance business shows a loss after section 179, you must use
the 5-year method; and, if you understand all this crapola, you're in the
wrong business, Jack!
Beginning with next month's issue, I'd like to invite those of you with a
specific tax or financial question to become one of "Raoul's Junior Tax
Buddies" by sending me your question. You can reach me through my post
office box in Medellin, Columbia, or in care of RAP. I'll do my best to
answer your question, and if your problem is real screwed up, at least
you'll be providing some grins to the rest of our readers.
Adios, and watch out for the little worm in the bottom of the bottle.
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