Federal Income Tax Deductions for Law Office Equipment

If you're a co-owner of a law practice or a solo lawyer, you're probably aware that you can claim a federal tax deduction for office equipment and software that you purchase during the year. Let's make sure you understand the rules surrounding the deduction, so you're not leaving any money on the table, or getting in trouble for taking too much money off.

How Much of the Purchase Price Can I Deduct?

If the item qualifies, you don't need to amortize the cost. You can deduct the entire purchase price in the year you placed the item in service, rather than spreading the deduction out over a number of years. There are caps, however. You can't deduct more than $1 million (inflation adjusted). Nice problem to have.

If you lease under a properly structured equipment lease or equipment finance agreement, you can deduct the full amount of the item, without actually having paid the full amount in the tax year. Yes, the amount you save in taxes can actually exceed the year's lease payment.

If you use equipment for partial business use and partial personal use, your deduction generally must be prorated. You must use the equipment at least 50 percent of the time for your business.

What Office Equipment Qualifies for the Deduction?

You can deduct the cost of computers, tablets, phones, copiers, scanners, and any other hardware that you use for your law practice. You can also deduct the cost of software, as long as it's "off-the-shelf" and not customized for your use. The equipment can be new or used -- think in terms of "new to you." It bears emphasizing that you can deduct only equipment or software that you purchased and first put into use during the tax year.

The deduction for office equipment is part of a broader deduction for certain depreciable business assets, which include office furniture and any tangible personal property used in your practice.

You can't deduct the value of office equipment you inherited or purchased from certain related parties. You can't play games by "buying" equipment from yourself.

As a result of 2018 tax reform legislation, you may also be able to immediately deduct the cost of heating and air conditioning systems, security systems, and certain other improvements made to nonresidential real property.

How to Claim the Deduction

In Internal Revenue Service parlance, you are making an "election to expense certain property under section 179." To claim your deduction, you must file IRS Form 4562 along with your return. If you did a trade-in, subtract out what you received from the seller. You don't have to expense the entire amount, if you'd like to amortize some of the cost. Also, if you use the equipment in both your law practice and another business, you can allocate your deduction between the businesses.

Of course, it almost goes without saying that it's always wise to consult a tax professional to determine how the tax laws apply to your specific situation and what method of expensing or amortization will benefit you the most.