Depreciating Assets Used in Your Business

You may depreciate your piano as a business asset. Depreciation is the IRS's way of "reimbursing" you for the cost of the capital equipment you need to conduct your business and thus make money so you can give a big hunk of it to the IRS.

Like business expense, each dollar you can claim in depreciation reduces your net profit. This, in turn, reduces your taxable income and thus your tax due. CAUTION: Reducing your net profit also reduces the maximum amount you may contribute to a Keogh or an IRA (you do have a retirement account set up and fund it to the max each year, don't you?).

You may depreciate a new piano or you may depreciate a piano that you convert from private to business use (you bought yourself a piano long before you began teaching, and now you use that same instrument to teach).

The IRS does not include a piano in its depreciation tables. My accountant and I discussed this at length and decided that a piano could either be classified as "office furniture" (groan--I know) or "light equipment." The former has a "useful life" of 7 years and the latter 5 years. Useful life (or "recovery period," as the IRS now terms it) is important because it tells you how many years you will be able to spread out the total depreciation amount. The fewer the years, the larger the annual amount. The IRS helpfully notes, any property "not assigned to the 7-year property class." So you are always safe with the designation of office furniture.

Another thing you need to know is the "basis." Normally this is the price you paid to acquire the instrument + anything else you put in immediately to refurbish it to make it fit for business use (say, you bought a used instrument and needed to replace parts of the action and fix the pedals). If the piano were a gift (perhaps your parents gave you your childhood piano and now you've converted it to business use), then the basis would be "fair market value," or what an interested party would pay you for it. Find fair market value by looking at piano ads in the newspaper and asking your technician for an estimated selling price.

After you know these items, you drag out your trusty calculator and go for it.

Incidentally, I'd advise all teachers who are depreciating assets to schedule an appointment with an accountant. (Look for one who has experience with small sole proprietorships.) I know it's a seemingly- large expense, but a good accountant can save you in taxes the price of the fee. (And that fee is totally deductible as a business expense.) Even if you never have another appointment, you use that year's taxes as a model for doing it right. I really recommend an accountant as money well spent.

copyright 2002, Martha Beth Lewis, Ph.D.
Contact me for reprint permission.

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