Some items may be able to deduct the entire cost of an asset in the tax year it waspurchased under Section 179 of the tax code. This is not depreciation, however. It’s a de-
duction. There are some restrictions, so check with your accountant. For example, it’s no
surprise that the amount you deduct cannot be greater than your taxable income.
Home Office Deduction
The home office deduction is something of a double-edged sword. On one hand, you can
deduct a portion of your personal expenses as business expenses. On the other hand, it
can throw up a red flag to the IRS. Also, you can’t take advantage of the home office de-
duction if you operated at a loss for the tax year. Obviously, you can’t use the home office
deduction to create a loss. The most you can use it for is reducing your profit to zero.
There are two methods to calculate the percentage used for your deduction. The first
is by square feet. The second is by the number of rooms. To use square feet, measure your
office space and then measure your home. The ratio of the two is the percentage you’ll
use to calculate your deduction. For example, let’s say your office space is 150 square
feet and your full house is 1,500 square feet. The ratio is 1:10 or 10 percent. Using the
room method, divide one by the number of rooms. For example, if you have six rooms
and use one for your office, your percentage would be 16 percent.
Other Deductions
Being a professional musician brings with it many potential ways to reduce your taxable
income beyond the obvious deductions. To take advantage of the various possible deduc-
tions, they need to be documented. Be sure to save your receipts.