OT--AKB Depreciation on Camera Equipment

[dailybuck777]

My 21-yr-old son started acquiring sophisticated camera and film equipment about 4 or 5 years ago. On his own he started writing, directing and filming short films which weren't intended to make money. He also had a photography website that did not make any substantial money. (maybe $600 over a couple of years with a couple of photo shoots.) In May of 2022 he started making significant money doing film editing and had a gross of $25,000 and profit of $22000 (deducting normal expenses, such as travel but not including any depreciation) while still going to college. I am wondering if equipment bought before 2022 can be depreciated, and if so how. For instance, supposed he bought a $5000 piece of equipment in 2020 -- how, if at all, can it be depreciated in the 2022 tax year.

 

[psualt]

Your basis is the lower of fair market value or it’s cost at the time it was converted to business use. If it’s worth 3,000 now that is your basis. If it’s worth 7,000 now you should use the 5,000 cost.

I’m thinking it will be written off over 7 years and may not qualify for expensing (although this is off top of my head).

 

[dailybuck777]

Thanks for your reply. This site says the depreciation schedule for photographic equipment is 5 years. https://fstoppers.com/business/tax-...er major,for the first 5 years of owning it.).

My guess is that the value of the equipment has depreciated and that in the example I gave, the equipment would be worth $3,000. You seem to be saying that my son could expense the whole $3,000 in 2022 even though the equipment was bought in 2020. My instinct (worth zilch) is that that wouldn't be permitted. If that is the case, it is good news for my son. Thanks a lot for your help.

 

[psualt]

Thanks for your reply. This site says the depreciation schedule for photographic equipment is 5 years. https://fstoppers.com/business/tax-guide-photographers-3703#:~:text=As standard, lenses, camera bodies and other major,for the first 5 years of owning it.).

My guess is that the value of the equipment has depreciated and that in the example I gave, the equipment would be worth $3,000. You seem to be saying that my son could expense the whole $3,000 in 2022 even though the equipment was bought in 2020. My instinct (worth zilch) is that that wouldn't be permitted. If that is the case, it is good news for my son. Thanks a lot for your help.

It very well may be 5 years. I said it may not qualify for expensing….for the same reason you stated above.

 

[junior1]

Thanks for your reply. This site says the depreciation schedule for photographic equipment is 5 years. https://fstoppers.com/business/tax-guide-photographers-3703#:~:text=As standard, lenses, camera bodies and other major,for the first 5 years of owning it.).

My guess is that the value of the equipment has depreciated and that in the example I gave, the equipment would be worth $3,000. You seem to be saying that my son could expense the whole $3,000 in 2022 even though the equipment was bought in 2020. My instinct (worth zilch) is that that wouldn't be permitted. If that is the case, it is good news for my son. Thanks a lot for your help.

tell you what I would do.....if I had receipts for $5,000, had income of $25,000, I would expense the entire $5000 year 1. Who knows what the value was when it was put into service? But, it's a safe bet that if you paid $5,000 and inflation took it to $6,000, the IRS would likely only allow the original purchase price. It may be right or may be wrong. You'll get multiple suggestions as to the correct thing to do, but one thing for certain is that they only people who could make the final determination is the IRS - and you'll never get a definitive answer from them.
Now it may be that it's better for your son to depreciate over five years, if that's the case, then that's what I'd do.
As long as you have a legitimate/defensible reason for doing what you're doing , it's not worth spending a lot of brain cells trying to figure out the IRS thinking. Just put some money away to pay the interest in the event your son is audited.
Now for all the tax paying "purests" on here...I have had numerous instances where I've had similar questions about expensing/depreciation...paid money to CPAs (in different states at different times), been audited and had the CPA decisions overturned. I came to the conclusion that the best way to deal with these things was to just make a rational decision and, if audited, explain the decision to the auditor, pay the interest and move on with my life.

 

[Obliviax]

tell you what I would do.....if I had receipts for $5,000, had income of $25,000, I would expense the entire $5000 year 1. Who knows what the value was when it was put into service? But, it's a safe bet that if you paid $5,000 and inflation took it to $6,000, the IRS would likely only allow the original purchase price. It may be right or may be wrong. You'll get multiple suggestions as to the correct thing to do, but one thing for certain is that they only people who could make the final determination is the IRS - and you'll never get a definitive answer from them.
Now it may be that it's better for your son to depreciate over five years, if that's the case, then that's what I'd do.
As long as you have a legitimate/defensible reason for doing what you're doing , it's not worth spending a lot of brain cells trying to figure out the IRS thinking. Just put some money away to pay the interest in the event your son is audited.
Now for all the tax paying "purests" on here...I have had numerous instances where I've had similar questions about expensing/depreciation...paid money to CPAs (in different states at different times), been audited and had the CPA decisions overturned. I came to the conclusion that the best way to deal with these things was to just make a rational decision and, if audited, explain the decision to the auditor, pay the interest and move on with my life.

I agree with you. You can't get a straight answer from the IRS and end up having to guess anyway. A lot of these decisions fall into the "it is easier to ask for forgiveness" as long as we aren't talking about tens of thousands of dollars and a "you should have known better" situation (like a good sized small business).

I would like to add a tangentiant story. A friend, a high ranking SVP at a good sized bank, had a son who was a good kid but didn't want to work very hard. The kid graduated from HS and set up a bedroom complete with a video game console and music area upon graduation rather than going to college. Dad and Mom tell him he's got one year to do something and move out. They gave him until August 31st, a little more than a year from graduating. Kid comes in and out, they hardly ever see him, they are concerned he is getting into drugs and booze although he insists he isn't. August comes around and they have a family meeting. They tell the kid that they weren't kidding, he's out by the end of the month. They are happy to pay for college or give him enough to start rent. Kid says "oh, no problem. I forgot to tell you, I bought a home and am moving in before the end to the month." Day says, "how did you buy a house? With what money?" Kid says he saved up $80k over the year and used that. Dad asks "where did you get $80k?" Kid, "I have a friend in a band and started promoting the band. We set up a way to download the music bypassing the big systems. Everytime there is a download, I make a percentage. I promote them on all of the social media and point to the download site. That worked, they told friends, and I signed four other bands. I am in negotiations with four more. I expect to make over $180k next year." The father has since quit his job and works with his son and their business.

 

[psualt]

tell you what I would do.....if I had receipts for $5,000, had income of $25,000, I would expense the entire $5000 year 1. Who knows what the value was when it was put into service? But, it's a safe bet that if you paid $5,000 and inflation took it to $6,000, the IRS would likely only allow the original purchase price. It may be right or may be wrong. You'll get multiple suggestions as to the correct thing to do, but one thing for certain is that they only people who could make the final determination is the IRS - and you'll never get a definitive answer from them.
Now it may be that it's better for your son to depreciate over five years, if that's the case, then that's what I'd do.
As long as you have a legitimate/defensible reason for doing what you're doing , it's not worth spending a lot of brain cells trying to figure out the IRS thinking. Just put some money away to pay the interest in the event your son is audited.
Now for all the tax paying "purests" on here...I have had numerous instances where I've had similar questions about expensing/depreciation...paid money to CPAs (in different states at different times), been audited and had the CPA decisions overturned. I came to the conclusion that the best way to deal with these things was to just make a rational decision and, if audited, explain the decision to the auditor, pay the interest and move on with my life.

FWIW I would do the same as you suggest unless it appeared to have more benefits in the future.