Tuesday, March 1, 2011
An Etsy seller asks: Bought in 2009 can I deduct in 2010? Yes.
I am just starting out with an online crafts store through etsy.
Your website is very helpful--answering questions I had and didn't know that I had! I got your list of deductible business expenses, and I think I probably know the answer to this, but wanted to check: Can I deduct the purchase of my computer from 2009 as a business expense?
I have just begun my business in January 2011. Does it have to be an expense purchased within 2011 to claim on my 2012 taxes?
Colorado Springs, CO
The years in your question are a bit confusing so just to be clear: What happens between January 1, 2010 and December 31, 2010 are all part of your 2010 tax return. Even though that return is not completed until 2011 it is your tax return for 2010.
Yes, you can deduct something you bought in 2009 on your 2010 tax return. Here's how it works:
Let's say you started a new business on January 1, 2010 and needed a computer. You bought a used MAC from the guy next store. Paid him $3000. He had paid $5000 for it new a couple of years ago. You get to deduct the $3000 computer purchase.
The same holds for equipment, supplies, a library, etc. you already have prior to going into business. Think of it as buying something used from yourself for your business.
So if in 2009 you bought a computer for $2000 and on January 1, 2010, when you became an indie, you could have sold that computer to a willing buyer for $1400, then you have a $1400 computer that you "bought" for your business and you get to deduct that purchase.
This is called converting from personal use to business use. I cover it in my book Self-employed Tax Solutions where Caitlin Caterer goes from cooking for her family to starting an indie business and even before going into business already has much of what she needs .
I wish you success in your new venture!
PS: Is that the answer you expected?