In a recent article, I explain the difference between arts and crafts costs versus tax deductible expenses. One of the differences I discuss is the treatment of arts and crafts fixed assets. Fixed assets are any long-term tangible assets you use in the normal course of business. Tangible means you can touch and feel them. So, when you purchase these items for your arts and crafts business, the price you pay or promise to pay, is a cost. Then as you use the fixed assets in the normal course of your business, you depreciate them.
Getting down to the practical, in this article I go through common arts and crafts computer and data handling tangible assets. This article also explains how to depreciate these types of arts and crafts assets. Ready to get started? Let's depreciate these assets!
Examples of Arts and Crafts Computer and Data Handling Assets
Just about every arts and crafts business will have computer equipment. We use our computer equipment to manage our website, purchase supplies online, email customers and handle the day-to-day accounting for our business. Computer equipment includes your desktop, laptop, printers, keyboards, mouses and any other peripheral computer equipment you use in your arts and crafts business.
I've always thought that data handling was a weird type of classification for these other types of arts and crafts assets - but that's how the IRS refers to them so I want to keep this consistant. Typewriters (Yikes - been years since I used one!), calculators and copiers are examples of data handling equipment you may have in your arts and crafts business office.
Introduction to Depreciating Computer and Data Handling Equipment
For tax purposes, using the Modified Accelerated Cost Recovery System (MACRS), these types of assets are depreciated over five years. Although, please note this article does not address any special expensing depreciation; the article is just a straightforward explanation of how to use the MACRS system of depreciation with the half-year convention. You can use the half-year convention if you place in service (purchased and started using) over 60% of all your tangible asset purchases for the year prior to October 1.
Step-by-Step: Depreciating Computer and Data Handling Equipment
Computer and data handling equipment is deemed to be a five year assets by the Internal Revenue Service. Here are the percentages you can deduct as depreciation by year:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%
In the year of purchase, the percentage is 20.00%; the second year it's 32.00%; the third year it's 19.20% and so on. So if you buy a laptop for your arts and crafts business in 2012 costing $500, your 2012 depreciation expense for the desk is $100.00 ($500 x .20). In 2013, the expense is $160.00 ($500 x .32). In 2014, the expense is $96.00 ($500 x .19.20).
Now you might be wondering about the software you purchase for your arts and crafts business. Five-year property also? The next article in this series of articles about depreciating arts and crafts asset is information how to depreciate the software you buy for your arts and crafts business.
