Musician and expenses

[erchess]

I still don't get

why pieces of equipment that have significant cost compared to the total income and total costs of the business AND that are expected to be in service for more than a year may not be depreciated under MACRS even if they are used to produce musical works. Would things be different if the assets were used to produce cars or widgets or computers?

Also was I wrong to use MACRS to depreciate the costs of expensive equipment used to repair cars?

The only taxpayer I have handled who made new items was a potter. I wrote off the costs of most of her tools as ordinary expenses because she told me that their individual cost was low and/or their lives were less than one year.The only assets that seemed to be long time were the wheel she used to make pottery on and the computer she used to keep her business records and run her cash drawer. I used MACRS on both. Was I wrong?

[DTS]

Uncle Sam and others

Uncle Sam,

Thank you for your answer the first of the month! I have been waiting to reply to your post until I received the final figures from my client. Those came in yesterday. Just a brief explanation of the situation to aid in getting an accurate answer.

Musician has paid humongous recording expenses in '07 and '08. No sales for '07 and sales will begin later this summer.

If I make the election for the 3-year amortization in 263A (not the income forecast method) on the '07 return, is this allowed ONLY if there are sales? I'm in hopes it is not. I would like to take the 50% deduction of costs on the '07 return where there are NO sales and then apply the second year amortization of 25% against the sales that will start in '08.

Also, if you have time, could you post an example of how the income forecast method is used? It seems strange to me that someone would have to tell you what they "expect" future sales would be, if this is the way it is done. This area is unclear to me.

This client is already under the watchful eye of the IRS and I need to be extremely accurate about this to protect him.

Thank you so much for taking the time and the example, if possible.

D