Could I write-off a $40,000 painting as a business expense?

[SuperTrooper]

I thought maybe some of you MBA folks might have an answer to this.

Let's say I have a doctor's/dentist's office, and i do some redecorating for the waiting room or operatories/whatever. This redecorating (chairs, wallpaper, etc.) is most certainly a business expense. So, what if some of the decorating is really nice stuff, like a painting work $40K? Now, I wouldn't actually keep this in the waiting room, I'd keep it in my office, but this would still count.

Anyhow, is this possible? WOuld I get in trouble?

---

Members don't see this ad.

 

[Law2Doc]

I thought maybe some of you MBA folks might have an answer to this.

Let's say I have a doctor's/dentist's office, and i do some redecorating for the waiting room or operatories/whatever. This redecorating (chairs, wallpaper, etc.) is most certainly a business expense. So, what if some of the decorating is really nice stuff, like a painting work $40K? Now, I wouldn't actually keep this in the waiting room, I'd keep it in my office, but this would still count.

Anyhow, is this possible? WOuld I get in trouble?

Yes you would get in trouble. Folks tried to do this kind of stuff back in the day, like purchasing expensive art for the office, or having the company car be a lamborghini. Didn't fly when those folks were hauled into court. It now must past the test of reasonability to qualify as a deductible "ordinary and necessary" business expense.

 

[SuperTrooper]

Yes you would get in trouble. Folks tried to do this kind of stuff back in the day, like purchasing expensive art for the office, or having the company car be a lamborghini. Didn't fly when those folks were hauled into court. It now must past the test of reasonability to qualify as a deductible "ordinary and necessary" business expense.

Ok, so are you saying that really fancy hotels/restaurants aren't able to write-off the fancy/expensive art and furniture you find in them? Or are these places better able to argue that the nice stuff is "ordinary and necessary" for their discerning clients. Cause, us medical professionals could argue the same thing - that our practice services high-end clients, and they dig the nice atmosphere.

I'm a bit of an art snob and I hate seeing tacky stuff in professional offices. Also, I'd rather put the money I would've spent on crappy art into something that might actually appreciate in value.

 

[Shredder]

great med business thread. theres nothing better than sticking it to uncle sam

 

[Law2Doc]

Ok, so are you saying that really fancy hotels/restaurants aren't able to write-off the fancy/expensive art and furniture you find in them? Or are these places better able to argue that the nice stuff is "ordinary and necessary" for their discerning clients. Cause, us medical professionals could argue the same thing - that our practice services high-end clients, and they dig the nice atmosphere.

I'm a bit of an art snob and I hate seeing tacky stuff in professional offices. Also, I'd rather put the money I would've spent on crappy art into something that might actually appreciate in value.

You can argue whatever you want, but the IRS will likely disagree, as will a judge if you dispute the assessment of interest and penalties. Your 40k deduction can quickly turn into a huge penalty assessment against you, for which there is no bankruptcy protection. Folks with high end discerning clients tend to be exactly the kind of person the IRS LOVES to make an example of. Doctors, lawyers, bankers, politicians, and celebrities tend to be at the top of this list and are at a much higher risk of audits and assessments than the public at large. (Just ask Willie Nelson). It pays to be squeaky clean if you plan to go into one of these professions. I did some work in my prior career with folks who tried to play a fast one on Uncle Sam along slightly different lines than you suggest -- it ended really badly for them. Seriously, find another way to make your money without messing around with the feds. It's just not worth it.

 

[SuperTrooper]

great med business thread. theres nothing better than sticking it to uncle sam

Where was I gonna post this... the lounge? I don't think I'd get any informed answers there, just heresy. Thanks CJLaw for your info.

It's always good to question stuff like this. My old man owns a small business and he did things the same way for like 25 years. Then, he spoke to an special sort of accountant about his business organization. Turns out there were a bunch of really obscure and seemingly unimportant changes that he should've instituted a long time ago. Once he fixed things, he ended saving a small fortune in taxes that otherwise would've gone to "uncle sam." The rich get richer cause they have the resources to find out about stuff like this. Bill Gates probably pays like 12% income tax every year, cause he's got a team of people thinking about his money. It's good to be informed.

 

[Law2Doc]

Where was I gonna post this... the lounge? I don't think I'd get any informed answers there, just heresy. Thanks CJLaw for your info.

It's always good to question stuff like this. My old man owns a small business and he did things the same way for like 25 years. Then, he spoke to an special sort of accountant about his business organization. Turns out there were a bunch of really obscure and seemingly unimportant changes that he should've instituted a long time ago. Once he fixed things, he ended saving a small fortune in taxes that otherwise would've gone to "uncle sam." The rich get richer cause they have the resources to find out about stuff like this. Bill Gates probably pays like 12% income tax every year, cause he's got a team of people thinking about his money. It's good to be informed.

Your notion of Bill Gates' level of taxes is urban myth -- he pays closer to 30-40%, I suspect, and pays more in taxes per year than you and I will pay over our lives (combined). There are many deductions and restructurings businesses are permitted to do, and consultation with an accountant or tax lawyer is often well worth the fees. In my prior career I worked with businesses in deals where the legitimate tax structuring was sometimes key. But you don't want to get fast and loose with trying to save more than you are entitled, because the IRS is an agency which will happily break you and tear you a new one if you try to get piggy. 😎

 

[Shredder]

Where was I gonna post this... the lounge? I don't think I'd get any informed answers there, just heresy. Thanks CJLaw for your info.

I hate sarcasm, but I see how you could misinterpret my statement. It's genuinely a good thread. Tax evasion is the only way to go. Blast that AMT though...I'm learning about it in class right now.

You'll get heresy in many parts of SDN unless you act like a good liberal.

 

[Law2Doc]

Tax evasion is the only way to go.

If by "go", you mean "go to prison", then yes, it's certainly a fast route. When you get there, be sure to put a beating on the biggest guy you can take, so that you get people's respect and don't become someone's b!tch. I think that happens all too frequently to the white collar criminals.
Seriously, while you should get good advice and take any and all deductions to which you are legally entitled under the income tax code, and there is certainly no requirement to maximize your tax liability, the wealthiest individuals tend to be pretty conservative (non-aggressive) with their income taxes, and actually pay their due (urban myths notwithstanding). There are better ways to make money than trying to cheat on taxes. This is just bad business sense.

 

[curious1]

"Your notion of Bill Gates' level of taxes is urban myth -- he pays closer to 30-40%, I suspect, and pays more in taxes per year than you and I will pay over our lives (combined)."

Most of Bill's wealth is in the form of stock or stock options, when he sells these he pays the CAPITAL GAINS taxes on them, not a personal income tax. So he pays 15% on most of his billions. Sorry to disappoint you.

I believe artwork qualifies as an asset for your business. When you purchase an asset, it is not an expense, because it is viewed like an investment. For example, if my practice purchases a wooden desk for 10k, I am not able to claim a 10k expense and offset my income. I have to claim depreciation losses on the item I purchased. The IRS tells you how long it takes something to depreciate. So they will tell me, you can depreciate a desk over 4 years, in which case, each year, I would claim 2.5k in depreciation, which would offset 2.5k in income, for 4 years.

That is my understanding of the tax issues.

 

[Shredder]

If by "go", you mean "go to prison", then yes, it's certainly a fast route. When you get there, be sure to put a beating on the biggest guy you can take, so that you get people's respect and don't become someone's b!tch. I think that happens all too frequently to the white collar criminals.
Seriously, while you should get good advice and take any and all deductions to which you are legally entitled under the income tax code, and there is certainly no requirement to maximize your tax liability, the wealthiest individuals tend to be pretty conservative (non-aggressive) with their income taxes, and actually pay their due (urban myths notwithstanding). There are better ways to make money than trying to cheat on taxes. This is just bad business sense.

Haha legal evasion I meant, havens and whatnot. Not like Al Capone 👎

But no moguls sit back and let Uncle Sam rob them blind. There's a whole industry dedicated to legal tax evasion

 

[Law2Doc]

While most of Bill Gates wealth is in the form of equity and options, I suspect doesn't derive most of his annual income from these routes, at least not on any regular basis. He gets dividends, a salary, and interest on his nonequity holdings. If a major executive such as Bill Gates starts selling off stock or cashing out options, it signals the public that something is wrong with Microsoft, and is disasterous for the company -- as a result he can only sell out slowly and periodically. In fact, Gates' taxes are so complicated and his income coming from so many varied sources that the IRS reportedly had to get a computer just to keep track of his returns. See http://www.forbes.com/2006/02/02/gates-irs-microsoft-cx_po_0202autofacescan03.html
Gates does run a family foundation where he puts a significant amount of money and gets charitable deductions via that route.

 

[curious1]

Actually, Bill Gates doesn't draw much of a salary. I believe he used to draw under a million dollars and now draws one dollar, annually. Microsoft only recently started to issue a dividend. His stock is sold on a pre published schedule to the tune of about 400 million dollars a year.

 

[medworm]

I thought maybe some of you MBA folks might have an answer to this.

Let's say I have a doctor's/dentist's office, and i do some redecorating for the waiting room or operatories/whatever. This redecorating (chairs, wallpaper, etc.) is most certainly a business expense. So, what if some of the decorating is really nice stuff, like a painting work $40K? Now, I wouldn't actually keep this in the waiting room, I'd keep it in my office, but this would still count.

Anyhow, is this possible? WOuld I get in trouble?

Agreed. Stay away from generic furniture if you can help it. Tax-wise, I think you're more likely to get away with Aeron chairs and Ames coffee tables than high art. Not to say that you can't put up artwork worth several dollars. But $40K...

 

[Law2Doc]

Actually, Bill Gates doesn't draw much of a salary. I believe he used to draw under a million dollars and now draws one dollar, annually. Microsoft only recently started to issue a dividend. His stock is sold on a pre published schedule to the tune of about 400 million dollars a year.

Although that sounds like a lot, it would be hard to know if that represents even the bulk of his annual income. He certainly doesn't necessarilly spend 400 mill per year, and so presumably much of that money previously withdrawn from stock is now generating taxable income via other means. The dividend Microsoft currently throws off to the number of shares Gates owns is pretty significant. Gates also derives income as a director of other companies, is paid for speaking engagements, etc. And per google search, his salary is reported at just over $600,000 plus $400,000 bonus, not a dollar http://www.smh.com.au/news/breaking/bill-gates-gets-a-raise/2005/09/29/1127804581006.html (not that either amount is relevent given his net worth 🙂 ).

At any rate, it's pretty conceivable that the dude pays more taxes than everyone who uses SDN ever will, combined.

 

[SuperTrooper]

I believe artwork qualifies as an asset for your business. When you purchase an asset, it is not an expense, because it is viewed like an investment. For example, if my practice purchases a wooden desk for 10k, I am not able to claim a 10k expense and offset my income. I have to claim depreciation losses on the item I purchased. The IRS tells you how long it takes something to depreciate. So they will tell me, you can depreciate a desk over 4 years, in which case, each year, I would claim 2.5k in depreciation, which would offset 2.5k in income, for 4 years.

That is my understanding of the tax issues.

Ok, so who is correct here? Let's ignore artwork because i think that's asking for trouble. Let's talk furniture like the 10K desk curious mentioned. Is this a business expense issue, or an asset/depreciation issue. ??

 

[Law2Doc]

Ok, so who is correct here? Let's ignore artwork because i think that's asking for trouble. Let's talk furniture like the 10K desk curious mentioned. Is this a business expense issue, or an asset/depreciation issue. ??

It still comes down to a question of reasonableness (in the eyes of the IRS). If it is considered investment property or is not an "ordinary and necessary" business expense (in the IRS opinion, not yours), it does not qualify for deduction in the year it is purchased. It perhaps may be a depreciable business asset as the prior poster suggested, but you really do not want to push the issue in terms of extravagance. The IRS will be okay with a business for depreciating its office furniture and equipment up to a reasonable level. So sure, you might be able to get away with a $10K desk lumped into a reasonable total office furniture and equipment depreciation amount. But maybe not much higher. You have to depreciate according to a schedule published by the IRS, and it affects your basis, so that when you sell, you incur even higher taxes on any increase in value. But it's still a huge risk the higher you try to push this.

It really makes more sense to spend your efforts trying to earn more, not save on taxes at the back end. 🙂

 

[masterMood]

wtf how do you guys know all this stuff? By the time i open up a practice and with my ignorance, I'm going to be knee-deep in IRS whoredom

 

[Jaguar]

A painting would be an asset for sure - not an expense. I also believe that art APPRECIATES in value generally, not depreciates. What the tax implications are, I'm not sure, but I believe that fine art is viewed as an investment. Any gain on the investment would be realized when the asset is sold, and would be taxed at that time. For regular assets like equipment, the asset amount could be written off over a number of years, resulting in yearly depreciation expense. But if you later sold that asset, you would have to calculate the difference between the selling price and the book value, and report that as a gain if it was positive. 😴