That’s a good question.
We had a discussion about a similar issue recently – about video rentals.
The concept is very much the same, so read the IRS audit guide described in that TaxQuip.
It’s not inventory, since you are not selling it. You have a depreciable asset here.
The question is, how long is the depreciable life to use.
Under the GDS (General Depreciation System) rules, you would use a 7-year life for anything that doesn’t fit anywhere else. (See link in Resource Center below)
Following the logic in the IRS audit guidelines for video rentals, you would use straight-line depreciation for 7-12 years
You can read more about depreciation in IRS Publication 946 http://www.irs.gov/publications/p946/index.html
No doubt, other tax pros will have some thoughts on this.
And remember, you can find answers to all kinds of questions about business expenses and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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- TaxQuip Archive :: Video Rental Businesses
- IRS Publication 946 :: Chapter 4 GDS Depreciatiable Life
- IRS Publication 946 :: How to Depreciate Property