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Can I deduct an expensive piano from my taxes?
#939390 01/27/07 11:28 PM
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I am a full-time piano teacher and I am considering purchasing a grand piano in the neighborhood of $15,000. Am I allowed to deduct the cost of that piano over the next 3-4 years? That would probably cover 100% of my taxes for 3 years in a row, so I am unsure if this is even allowed.

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Re: Can I deduct an expensive piano from my taxes?
#939391 01/28/07 12:07 AM
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Of course, it's a business expense along with any music you buy, any equipment you use in your studio, travel to conferences, etc...

I don't think you can spread it out over several years, though. Get a decent tax person who understands the teaching business. Ask other teachers who they use for their businesses.


"If we continually try to force a child to do what he is afraid to do, he will become more timid, and will use his brains and energy, not to explore the unknown, but to find ways to avoid the pressures we put on him." (John Holt)

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Re: Can I deduct an expensive piano from my taxes?
#939392 01/28/07 12:20 AM
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Quote
Originally posted by Kreisler:
Of course, it's a business expense along with any music you buy, any equipment you use in your studio, travel to conferences, etc...

I don't think you can spread it out over several years, though. Get a decent tax person who understands the teaching business. Ask other teachers who they use for their businesses.
I am pretty sure I can spread it out over a few years because that is what my accountant offered to do with a piano I bought years ago. But that piano was only a couple grand, whereas this one is about 300% what I owe in taxes for a year. Can a teacher really go 3-4 years without paying a penny to the IRS because he/she has a very expensive piano?

Re: Can I deduct an expensive piano from my taxes?
#939393 01/28/07 12:38 AM
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For a self-employed piano teacher, purchase of a piano, which is a capital asset of the business, should give you a depreciation deduction for its cost (assuming 100% business use). This is probably spread over either seven years using the standard method, or deductible all in the first year as a Section 179 deduction (to the extent of net income, with any excess carried forward to deduct against net income in subsequent years). I think.

For excruciating details, see IRS Publication 946:
http://www.irs.ustreas.gov/pub/irs-pdf/p946.pdf

Re: Can I deduct an expensive piano from my taxes?
#939394 01/28/07 01:00 AM
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Keep in mind that an adjustment to income such as depreciating a piano is not a tax credit. It just means that you made less money because you spent money on the business. If you spend $15,000 on the piano, you will not get $15,000 off your taxes, just off of your taxable income.

There are some things that you must consider and discuss with your accountant. You will probably be better to depreciate the piano rather than taking the Section 179 option. Especially since it makes no sense to use up this adjustment on income below the zero-bracket amount. All you are doing then is reducing the amount of Social Security income you will be credited for, which is not a good idea. This may mean depreciating more slowly than you might think you want to, and paying your Schedule SE taxes.


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Re: Can I deduct an expensive piano from my taxes?
#939395 01/28/07 03:28 AM
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Mike A and BDB,
Right on!
Pianoman -- good advice from above... enjoy your new piano.


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member MTNA and Piano Basics Foundation
Re: Can I deduct an expensive piano from my taxes?
#939396 01/28/07 05:15 PM
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Tax law is different depending on where you live, but typically you are able to write off the depreciated value of legitimate business tools (in this case a piano) yearly from your taxable income (there may be very specific pre-determined depreciation rates for pianos set out by your taxation agency (ie Revenue Canada in my case) - not sure on this point, but your accountant will be able to figure this out). Your accountant will also consider the percentage of business use vs personal use. Also, there may be special limitations on how much you can spend on a piano as a business expense. (you can spend more, but you will only be given credit for the maximum allowable. For example, if I bought a Jaguar as my company vehicle, tax laws where I live would only allow me to claim depreciation on $35,000 ... not the $84,000 purchase price.

Hope this helps.


Estonia 168 - slow down, relax, & listen
Re: Can I deduct an expensive piano from my taxes?
#939397 01/29/07 02:24 AM
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In Canada, there is the added issue of what to do about the piano when you stop teaching. This is because acoustic pianos actually appreciate in value over the years, and not depreciate. So then you may end up having to pay taxes on a capital gain if you sell the piano. I don't know the details, but the accountant who spoke to our group of teachers advised not recording the piano as part of your expenses.

Re: Can I deduct an expensive piano from my taxes?
#939398 01/29/07 08:42 AM
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Acoustic pianos do not appreciate in real terms. This is a fallacy, though much bandied about, especially by Steinway, pianos do npot represent an appreciating asset.

They may appear to appreciate, but this is only the effect of inflation on new piano prices over a long period.

Any piano used in a business in this way is likely to be written down to zero net book value long before it is disposed of.

I do not live in the US, but I am astounded that an accountant advised not treating this as a business expense. (I shoudl say I trained as a Chartered Accountant with Price Waterhouse). Unless there was some very clear legislative reason not to, I would certainly treat it is a business asset and also charge all costs of maintenance, insurance, tuning and so on to the business.


Currently playing 2017 C212 with carbon fibre soundboard, WNG action. Working on Bach, Beethoven, Grieg mainly.
Re: Can I deduct an expensive piano from my taxes?
#939399 01/29/07 10:35 AM
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Just another 2 cents worth on taxes - if you haven't done so already, get a auto mileage log from Office Depot (or sim) and start recording mileage every time you use your car. If you drive from the studio to the music store, it's a business expense. If you drive to student's homes, it may be deductable. Check with an accountant. The tax law says (or used to say) "away from your primary place of doing business" so if 90% of your business is conducted at your studio, but 10% requires you drive to another venue, that should be deductable.


"Those who dare to teach must never cease to learn." -- Richard Henry Dann
Full-time Private Piano Teacher offering Piano Lessons in Olympia, WA. www.mypianoteacher.com
Certified by the American College of Musicians; member NGPT, MTNA, WSMTA, OMTA
Re: Can I deduct an expensive piano from my taxes?
#939400 01/29/07 10:41 AM
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Adrian,

Unfortunately, US tax law doesn't seem to recognize the difference between nominal and real. If you sell the piano years later for a greater nominal price than you paid for it (which is normal) I believe you will owe a capital gains tax on the entire nominal amount (because you have fully depreciated the asset by taking the tax deduction). I'm not a tax person, so perhaps the code is different now.

Cheers,

David

Re: Can I deduct an expensive piano from my taxes?
#939401 01/29/07 10:54 AM
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One other issue is that the expense needs to be used primarily for business purposes. If you keep the piano in the general living area of your home for instance, it may not be viewed as a business expense.

On the other hand, if the piano is in a room reserved exclusively for teaching, it may be a legitimate expense.


The IRS publication below may help you understand the advice of your advisor.

http://www.irs.gov/businesses/small/article/0,,id=109807,00.html

Re: Can I deduct an expensive piano from my taxes?
#939402 01/29/07 10:40 PM
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Quote
Originally posted by Dorrie:
One other issue is that the expense needs to be used primarily for business purposes. If you keep the piano in the general living area of your home for instance, it may not be viewed as a business expense.

On the other hand, if the piano is in a room reserved exclusively for teaching, it may be a legitimate expense.


The IRS publication below may help you understand the advice of your advisor.

http://www.irs.gov/businesses/small/article/0,,id=109807,00.html
I was told I didn't necessarily have to be teaching my students ON that piano. Just using the piano to prepare lessons and practice music I've given to advanced students (so I can be prepared to teach them) is enough to make it business use.

Re: Can I deduct an expensive piano from my taxes?
#939403 01/30/07 12:34 PM
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As long as you do not use it for pleasure, that is correct.

If you use it for pleasure/hobby purposes as well as business purposes you would need to do a proportional deduction.

If the piano is in your home and you do not use it for lessons, I would check very carefully with my tax advisor, especially if your profit from lessons is low.

For instance, if you use a car for business, but also for other things, one needs to track the business mileage and then use that to determine what portion of expenses are deductible.

Re: Can I deduct an expensive piano from my taxes?
#939404 01/30/07 08:14 PM
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Dorrie, that's what's great about being a piano teacher! Everything I play on the piano is to make me a better teacher. Bet the same is true for you! 3hearts


"Those who dare to teach must never cease to learn." -- Richard Henry Dann
Full-time Private Piano Teacher offering Piano Lessons in Olympia, WA. www.mypianoteacher.com
Certified by the American College of Musicians; member NGPT, MTNA, WSMTA, OMTA
Re: Can I deduct an expensive piano from my taxes?
#939405 01/30/07 08:35 PM
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John -

There are many things I do that make me better at my occupation. I am not sure the IRS would agree that all of those things qualify as deductable business expenses.

And in the end, the issue for Pianoman, if the case history is not clear, is whether the gain from the deduction is worth the interest and penalty if he is wrong. His income from teaching is modest, and this is a large deduction,

OT - I love your website John - looks like you have a very well run, warm and friendly studio.

Re: Can I deduct an expensive piano from my taxes?
#939406 01/30/07 09:32 PM
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You have to walk a fine line between what is a personal expense and what is a business expense. The best thing to do is to get a tax attorney or accountant to consult with.

As has been pointed out...the deductions are from taxable income, not from tax payments. Also, consider the value of forming an LLC for your piano business. This would help you clearly distinguish business expenses and income from your personal expenses.

Don't just let Uncle Sam steal your money though. If you have a legitimate business expense, make sure you deduct it from your income before paying taxes.

Again, consult with a professional liscenced in your area.


-Otto

Weinbach 273773

"Greatness is what we achieve by doing what is right when we are alone and no one else will know."
Re: Can I deduct an expensive piano from my taxes?
#939407 01/31/07 12:46 AM
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Actually, oshill, you have excellent advice. As I have mentioned elsewhere, I have more pianos than are just in the studio, so, like my cars (one is designated solely for business use, no personal use allowed), my studios pianos (4 instruments) are designated for business only, and the other two are designated for pleasure. The IRS would have to fight my wife who would tell them unequivically that I work an 18 hr day, so nothing outside the bedroom is personal! eek

Dorrie, thanks for the kind words. The general rule is if your employer requires it for work, it's deductable. In a sole proprietorship, we wear two hats! "The boss told me I had to do it."


"Those who dare to teach must never cease to learn." -- Richard Henry Dann
Full-time Private Piano Teacher offering Piano Lessons in Olympia, WA. www.mypianoteacher.com
Certified by the American College of Musicians; member NGPT, MTNA, WSMTA, OMTA
Re: Can I deduct an expensive piano from my taxes?
#939408 01/31/07 06:10 AM
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Piano Dad - thanks for the information.

However, unless the capital tax is higher than income tax on business profits, then it must still be worth treating the piano as a business expense if only becuase of the deferred tax effect.

Charging the piano now, avoids tax liabilities in the short term.

The price is that capital tax may be payable later, BUT only if the piano is sold (this could be in 40 years, or never) and only if the proceeds exceed the original cost (this is at least uncertain and requires a good few years of inflation).

Obviously a local tax adviser is necessary, but it still seems like a no brainer to me.

Kind regards

Adrian


Currently playing 2017 C212 with carbon fibre soundboard, WNG action. Working on Bach, Beethoven, Grieg mainly.
Re: Can I deduct an expensive piano from my taxes?
#939409 01/31/07 12:01 PM
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A friend of mine who recently purchased a very nice grand piano actually did not claim it as a business expense though she clearly could have. As a teacher/performer she could have deducted 100% of the cost I'm sure. She relied on advice from her tax accountant. I can't give you the details of why, and it is indeed possible that her tax accountant failed her in this regard.

One thing I remember from the discussion is that she said she would apparently owe a separate ongoing tax (perhaps to her locality) on the piano as an asset, and that this tax partially (or largely) offset any deduction. This sounded kind of funny to me, but I didnt probe further. I suspect she and her accountant also may have failed to think in terms of net present value, but who knows.

One other potential cost is that large deductions likely raise your chances of being audited, and for an individual who is self-employed (with no staff of tax lawyers to do the work for them) being audited is a significant expense in terms of time, risk, and hassle.

Best,

David

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