Should I buy my music gear after I've incorporated my band so I can write it off on my taxes?

Question

I have some music gear that has good resale value; I can probably sell it and get almost what I paid for it. At this point I am unable to write these expenses off (a couple grand) because the government would consider it more of a hobby than a business.

Should I sell this gear and then buy it later after I'm able to say my band is a business? Or should I bite the bullet and keep it?

I also understand I'm also able to write-off gear year after year that I had bought in previous years. I can't remember the term for this, but how much would I be able to write off under this clause?

Advice to help me a poor student save some bucks is appreciated!

Okay, I said incorporate, but I guess a more accurate term is "become a business". It'll be a small business.

So would you recommend me buying my gear after I can say I'm in a business? Or because of depreciation, can I write it off after I become a business?

Answer 1

Never incorporate until you're worth more than you owe. Corporations have to fill out corporation tax returns and pay annual fees to remain corporations.

Answer 2

The term you are looking for is depreciating. Instead of claiming the entire expense in one year, you spread the cost out over the life of the equipment and take part of the expense each year as a deduction. You don't write the whole amount off year after year. If for example its useful life is 5 years and it costs $2000, you'd write off $400 each year for the 5 years.

If you incorporate but still don't show a profit motive, but just do your music as a hobby, you'll end up paying more overall than if you don't incorporate. Incorporating gives you protection of your personal assets from issues due to business, but doesn't let you just write off personal expenses. So if you're planning to incorporate just to be able to write off a couple thousand dollars worth of equipment, it's a bad idea financially, no matter what type of corporation you have in mind. You say you're a "poor student" - even if you're in a bracket as high as 15% the tax savings of "writing off" $2000 would be at most $300 - you're going to pay more than that to get incorporated and stay incorporated.