Business Tax and deduct an expensive piano

Andana said: Aug 21, 2019
 
Suzuki Association Member
Piano
12 posts

I am not sure if this topic has been taken up as discussion before, I couldn’t find any topic about business income taxes!

Am I allowed to deduct the cost of new expensive piano as business tool yearly from business taxable income?
Have any other teachers know about it, done that or is it even allowed? How about depreciation of the equipment in your studio? I know in the US, IRS allows you to deduct cost of the travel to conferences
from your income taxes, and car depreciation if used for travel between distances …

Thank you in advance for any responses
/Andana

Irene Mitchell said: Aug 22, 2019
Irene Mitchell
Suzuki Association Member
Violin, Viola
Dallas, TX
114 posts

Andana, you would do well to hire someone who knows what they are doing…taxes are getting more and more complicated every year.

My CPA is Meghan Birmingham, and she is also a teacher & violist with the Dallas Opera. She does a lot of professional musicians’ taxes, both performers and teachers. She can do your taxes with you over the internet & phone. She is honest and knows all of the deductions!!
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Irene Mitchell

Andana said: Aug 22, 2019
 
Suzuki Association Member
Piano
12 posts

Thank you dear Irene. I will surely contact her or hire an accountant/lawyer when it comes down to it. At this moment, I am only looking to get some info regarding instruments being used, renting a place and if ( for the lack of better tax term) the capital used is higher than income generated from teaching, what happens?
And many other questions, perhaps a book would be good to refer to on how to maximize your earning…

Thank you again for the information.

Barbara Eadie said: Aug 22, 2019
Barbara Eadie
Suzuki Association Member
Flute
Victoria, BC
26 posts

You really need to talk to a tax pro about this. In my experience it can be tricky deducting the purchase of an instrument. An instrument purchase is usually treated as a Capital expense which means you depreciate it over a period of years. Since musical instruments usually increase in value this can create a problem should you sell the instrument later. This is why you need to talk to a professional. I would suggest you talk to other professional musicians for recommendations in your area. The last thing you want to do is to trigger a tax audit!

Save all your receipts for all expenses related to your teaching and performing. The tax professional will tell you what you can use and a deduction.

Andana said: Aug 23, 2019
 
Suzuki Association Member
Piano
12 posts

Thank you dear Barbara, yes I definitely need a tax professional in case I start teaching. Also I didn’t know that musical instrument such as piano may increase in value after purchase / usage… Interesting point to have in mind, if I decide to sell. And you are right, I don’t want the Tax Audit cloud over my head.
Thank you again for your response.

Mengwei Shen said: Aug 23, 2019
Mengwei Shen
Suzuki Association Member
Violin, Piano, Cello
Jersey City, NJ
195 posts

I used to do my own taxes and now pay a professional whose job it is to know (or find out) everything I don’t and to keep up with tax law changes. You can use my information for general knowledge but will want to independently verify and seek qualified review of your specific situation.

Piano (instrument) used for business:
- Is considered “equipment” or asset not “supplies” which means deducting the cost over the “useful life” of the asset (depreciation).
- There are some provisions for deducting the cost of equipment in one year rather than over the useful life; look up “Section 179 deduction” and also there is something new in the last few years is something about a $2,500 limit (although I’m sure the piano exceeds that…).

Car:
- As an independent contractor / self-employed teacher and musician, I use the standard mileage rate (58 cents per mile for 2019) and log the miles to my teaching locations, to rehearsal and performing locations, to conferences/workshops/institutes, to meetings with colleagues, to the store where I buy supplies and sheet music, to the shop where my and my students’ instruments are serviced, etc. The other, more complicated way would be the direct expenses (gas, maintenance, insurance, etc.) and depreciation based on percentage of business usage.

Studio/office:
- Renting outside teaching space: business expense.
- Home office: there are a bunch of rules about this. My personal situation qualifies and I use a percentage of expenses rather than the standard rate per square foot.

Expenses exceeding income:
- This does happen in business, quite reasonably in the start-up phase and then even an established business can have a bad year. What the IRS is after in scrutinizing losses (not just one year of loss; I’m sure the algorithms look for some sort of pattern) is hobby activity, which is not allowed, vs. business activity. Assuming you’re a sole proprietor filing Schedule C, you just show a legitimate loss on that form, and there’s nothing wrong with that. Of course, if you’re trying to make a profit so that you can support yourself and your family, continued losses will be a problem!

Mengwei Shen said: Aug 23, 2019
Mengwei Shen
Suzuki Association Member
Violin, Piano, Cello
Jersey City, NJ
195 posts

Also, I wouldn’t bother with books, which get outdated quickly, for guidance on tax stuff, but look online for credible blogs and articles written in the last year or two. I still read for my own education and planning rather than going to the tax preparer for every little thing.

Yes, you might deal with capital gains tax if you sell the piano for more than your tax basis (what it cost to acquire and some other calculations), but I wouldn’t worry about it until selling is on the horizon. I’m no expert on valuations of musical instruments, but suppose I want to sell you a thing for $100 and you only want to pay $10. It’s worth what someone wants to pay for it, and if it’s not being sold, or no one wants it, does the “value” really matter? Just keep organized with records of everything.

Andana said: Aug 28, 2019
 
Suzuki Association Member
Piano
12 posts

Thank you Dear Mengwei for your feedback. Filing taxes are complicated subject for me particularly if I become a sole business owner. I would think, in my case, it will be better to have a licensed Accountant/lawyer that can help me out with best possible chances for refund (at least in beginning).
I also totally agree with you that losses can’t be continued argument in tax filing.
If teaching appears in my horizon, I d rather acquire good equipment (piano) , because I do believe (at least in start ) it is crucial to have best sounds and musical feel. But having a cap of couple thousands dollars wont help me financially really. Basically I need to evaluate pros & cons of purchasing and it appears only a CPA/lawyer can be my best guide.
Thank you again for your informative response/

Mengwei Shen said: Aug 29, 2019
Mengwei Shen
Suzuki Association Member
Violin, Piano, Cello
Jersey City, NJ
195 posts

I’m just going to suggest to be careful of letting the tax tail wag the dog. The Section 179 limit is definitely way more than a few thousand, and even if you went over that, it simply means different paperwork. If you determine a purchase is a good business decision, work out the tax consequences with a pro and go for it. If you shouldn’t have bought it, tax optimization won’t get you out of that.

Make a list of everything that relates to dollars and business activities and let the accountant tell you which ones count or not (what s/he think is defensible or not in an audit). Learn from there, and learn about estimated tax payments (necessary if you don’t have another employer and paycheck where taxes are withheld for you). Keep in mind that getting a big refund means you paid too much tax during the year (think of it like when you hand over cash at the register and you get change back). You might rather have had access to those funds earlier for business or personal needs, so that’s a part of tax planning that an accountant can go over with you.

But business is not only about taxes. Early in my studio days, I met with a volunteer business mentor (through the SCORE organization), which was very helpful in gaining insights on other aspects of business and getting my thoughts organized. Good luck with the new venture; with the administration taken care of, you can be at ease to focus on the teaching part!

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