Copyright 1999 The Chronicle Publishing Co.
The San
Francisco Chronicle
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JUNE 15, 1999, TUESDAY, FINAL EDITION
SECTION: BUSINESS; Pg. D3; MONEYBAG
LENGTH: 636 words
HEADLINE:
Old Computer + New Business = Tax Deduction
BYLINE: ARTHUR M. LOUIS
BODY:
Q: I recently created a sole proprietorship, in which I use a
computer that I purchased before the business existed. Can I
claim depreciation on this equipment when I file my taxes?
A: Yes -- but you will have to do a little research first. You must find
out the market value of your computer as of the day you started
using it for business. Any computer dealer who buys and sells
used machines probably can help you. If the market value is less than you paid
for the computer -- almost certainly the case -- then that becomes your cost
basis in determining how much you can depreciate. If by some strange chance the
market value is more than you paid -- for example, the computer was autographed
by Bill Clinton and Joe DiMaggio -- then the original cost becomes your cost
basis.
Once you have figured your cost basis, you can depreciate that
amount over a five-year period. You will have to file Internal Revenue Service
Form 4562 with your tax return.
Depreciation is a highly complicated
subject. You need to find out whether you qualify for straight or accelerated
depreciation, what adjustments to make if your computer stops working or you
sell it during the five-year period, and how to alter your cost basis if you
occasionally use the computer for personal use. That is more than you asked and
more than I have space for.
For more details, get a copy of IRS
Publication 946. You can download it from the Internet at www.irs.gov, or order
a copy by telephone at (800) 829-3676.
401(K) WITHDRAWALS
Q: I
recently withdrew a large sum of money from my 401(k) plan to make the down
payment on a house. The plan trustees insisted on withholding about 20 percent
of the amount I withdrew to pay federal and state income taxes. I am a
first-time homebuyer, and I thought that this entitled me to withdraw the money
without paying taxes. How do I get my money back?
A: I'm afraid you have
badly misinterpreted the law. Not only must you pay regular income taxes on your
withdrawal, but you also must pay a 10 percent penalty tax if you are younger
than 59 1/2 years old.
If you had withdrawn the money from an Individual
Retirement Account to pay for a home, you would not be subject to the penalty
tax, although you still would have to pay regular taxes. Under the law, 401(k)
plans are treated less generously than IRAs in this respect, unfair as that may
seem.
Taxpayers who were aware of the discrepancy used to get around it
by rolling over money from their 401(k) plans into IRAs, notes IRS spokesman
Jesse Weller. They would then withdraw money from the IRA to make the down
payment on a house, thus escaping the 10 percent penalty.
Alas, you
can't do that anymore. Congress closed the loophole effective with the start of
this year.
STOCK SPLIT PRICES
Q: In press reports of stock
splits, I have noticed the expression "based on today's price." What does any
momentary price have to do with a stock split? As I see it, the split will
affect the price, not vice versa.
A: Your question had me baffled until
I used my computer to comb through the 6,000 publications in the Dow Jones
Interactive database, looking for the phrase you mention. I found a few such
references.
It usually goes something like this: "Company XYZ plans a
2-for-1 stock split to take effect July 12. Based on today's closing price of
112, the new shares would be worth $56 apiece."
There's
nothing sinister here. The reporter is simply trying to give you a rough idea of
the price range for the post-split shares. Not even the most naive reporter
supposes that a future stock price will necessarily be the same as today's
price.
Send questions about how to manage your money to
moneybag@sfgate.com, or to Arthur M. Louis, Moneybag column, 901 Mission St.,
San Francisco, Calif. 94103.
LOAD-DATE:
June 15, 1999 
