Marketing DVD

[DTS]

Can the production costs to develop a company DVD that will be sent to vendors and potential customers be depreciated? It appears this would fall under 7-year (TTB 9-10) for printing and publishing ???

The costs are huge and there's no advantage to write them off this first year, if I can save the cost for future years.

Thank you,

Dennis

[erchess]

I may be revealing my ignorance here

but what would stop you from depreciating them? I didn't look up where they would fall under Macrs but your seven years seems reasonable. You are probably thinking of Double Declining Balance but don't overlook 150 Declining Balance and Straight Line if, as i suspect from your post, revenue is expected to increase in the future.

The worst trouble one can get into relative to depreciation is to write off as an ordinary expense an item that must be depreciated. This is particularly embarrassing with a client who could have taken the Section 179 Election to Expense on the item. When the IRS examines the return, it is too late to take that election. All you can do is depreciate the asset, which results in an understatement of tax liability and therefore interest and penalties. If the IRS were to force you to NOT Depreciate the item, the result would be that the service would owe your client money unless the year was already closed. Closed or not, the IRS normally changes returns in its favor not the taxpayer's favor. Now don't get me wrong, they will point out to your client that you are an idiot if you try to depreciate things that cost under $100 or clearly have a useful life of under one year. But I don't think many professionals or clients are likely to make that mistake.

[DTS]

erchess

Thanks for the post. It's been a very stressful couple of weeks and yesterday was my first full day back to work. I then proceed to post a stupid question while my mind was like mush! How smart is that?

I reread my question and my intended query was the type of property it would be and how many years. How the rest of that junk got in there, I have no idea!

Anyway, please forgive my lack of clarity. It will get better, I think.

Dennis

[erchess]

We all have days like that believe me

And indeed I now have second thoughts about my initial answer. I also just deleted a very long answer.

Just so we're on the same page, your client has developed a presentation for potential buyers of his product and for vendors. The presentation will go out on DVDs. Broadly speaking there are three costs.

Tax treatment of the cost to develop the presentation depends on how long he thinks it will be before he makes any change at all other than the correction of an error. If he thinks that time will be less than or equal to a year then we have a current expense. If he thinks it will be more than a year then regardless of how long he thinks it will be the presentation is in my opinion seven year property under number c ttb 9-8. It is not printing property under ttb 9-10.

Tax treatment of the cost to put the presentation on DVDs depends on how he achieves this. If he gives the presentation to another firm that cranks out the DVDs then we have a current expense. I suspect that he bought equipment which would be five year computer equipment ttb 9-9.(The equipment will consist of a PC or perhaps more than one, and one or more presses. The presses are peripherals because they are controlled by the PCs.) Said equipment would not be publishing equipment ttb 9-10 because the latter is for printing on paper, period. And of course don't forget the costs of electricity, blank DVDs, labor and so on, which would be current expenses.

The cost of getting the DVDs out into the world is as you well know a current expense.

[sea-tax]

Can the production costs to develop a company DVD that will be sent to vendors and potential customers be depreciated? It appears this would fall under 7-year (TTB 9-10) for printing and publishing ???

The costs are huge and there's no advantage to write them off this first year, if I can save the cost for future years.

Thank you,

Dennis

The way I see it , it is a promotional or advertising expense. If deductions are needed I might lean to expensing it. I think depreciating it would be fine and 7 years is most likely correct.

[ChEAr$]

Anybody thought yet?

that what we have here is intangible property?

Only the costs of producing the cd's themselves would be tangibleand
therefore depreciable. Any costs of putting the presentation together
are intangible in nature.

[erchess]

Hmmm

The document could be intellectual property which I guess is intangible. Assuming for the moment that Harlan is right, how would costs be recovered? Are you stuck adding them to the basis of the business or can you amortize them and if so over how long?

[Bees Knees]

A few things to consider:

Costs incurred to advertise or market a product or business are currently deductible as advertising expenses. What is the purpose of the DVD? When you say it is a marketing DVD, isn’t that the same as advertisement?

Even if it isn’t advertising, to be depreciable, it has to have a useful life of over one year. It could be that the DVD provides information that becomes obsolete within a year. That would disqualify it from being depreciable.

[DTS]

Thank you all...

for your answers! I appreciate your help.

Dennis