Discussion:Office decor

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Discussion Forum Index --> Tax Questions --> Office decor


Jenkins (talk|edits) said:

13 December 2006
Since it is Christmas time, are Christmas decorations a misc. office expense? And while we are on this discussion would this also apply to artwork or plants and other such things used to make the office more aesthetic?

Will (talk|edits) said:

13 December 2006
Jenkins,

In the companies that I own I expense Christmas decorations in the hope that one day a revenue agent will try to have them thrown out and then I can publicly claim the IRS is trying to destroy Christmas! Artwork should be capitalized. I've never owned a plant that has lived longer than a year so I expense those also.

Will

P.S. - I am talking about less than $100 or so a year in Christmas decorations, If your client has 6 branch offices and spends a couple of thousand on decorations that are used over and over then they would need to be capitalized also. :(

San Diego (talk|edits) said:

14 December 2006
I have a client who is a docter that accepted original paintings in return for services. Thus far, he refuses to recognize the income and capitalize them. If he does, what would be the basis since there is no market price for the artist? My guess is the value of the services provided.

Will (talk|edits) said:

14 December 2006
Yeah, I think so SD, FMV of the services provided would be income. Basis would be the amount he recognized.

Will

Bbla (talk|edits) said:

14 December 2006
One of the questions asked by an IRS agent during the interview is

"did you engage in any bartering transactions". If he is audited, he will have to say yes. The client should show this bartering transaction at the FMV of his services rendered. The doctors patient will probably deduct the paintings as payment for medical services. It the patient is audited, then the same question "did you engage in any bartering transactions". Bartering transactions are cross-checked, during an audit.

San Diego (talk|edits) said:

14 December 2006
Thanks, his paintings are so obvious too. When I went to his office the first time I asked about them, which is how I learned the details.

Death&Taxes (talk|edits) said:

14 December 2006
Can he depreciate the paintings? I take it they are originals, done by the patient. Paintings don't have a life and there has never been a court case like Brian Liddle (ancient instruments) to uphold the depreciation expense. Good point about the bartering!

Jdugancpa (talk|edits) said:

14 December 2006
Not everything hanging on the wall, however, is "artwork."

As to capitalizing the cost of Christmas decorations, how does it differ from any other small office equipment the client buys. You and the client agree together on some threshold amount that requires capitalizing. If below the threshold, expense, if above, capitalize. The threshold might be different for my little CPA office than Boeing or Microsoft might use.

Claudebass (talk|edits) said:

15 December 2006
I had a doctor who collected 2000 year old Mayan pottery and wanted to

depreciate it because he put it in his office. I wrote him a cya letter. Sho nuff he got audited. I didn't even bother appealing.

CrowJD (talk|edits) said:

16 December 2006
Assuming it is "artwork", or lets say furniture that is not antique but is considered to have collection potential (some of the furniture done in 40s to 60s is considered highly collectible now)..... can any of this be depreciated? I take it that the artwork (say an above average oil painting) is not depreciable. But if they are using the 1940-60s furniture, that can be depreciated, right (i.e. it's not a hundred years old yet so technically not an antique)? Also, some of these top drawer professional offices that have nice paintings and antique furniture..... these are investments, correct? There is no depreciation there, just a possible future gain or loss taxed at higher collectible capital gain rates if indeed a gain is ever realized?

Death&Taxes (talk|edits) said:

16 December 2006
JD, I think your question goes into that category 'Don't ask, don't tell.' I would bet that large, white-shoe law firms treat them as investments while Joe the Ambulance Chaser 179s them. :)

Dennis (talk|edits) said:

16 December 2006
You would lose, D&T. While I don't know any that would try a Renoir, the general opinion is that post 1981 all tangible personal property has a class life.

Death&Taxes (talk|edits) said:

16 December 2006
Better tell the IRS, Dennis! In an Action on Decision (CC-1996-009) the caption reads "IRS will continue to challenge ACRS deductions for antique musical instruments." In the text, it specifically adds "that have no determinable useful lives." This was in reference to both the Simon and the Brian Liddle cases. The majorities in both in Tax Court and on appeal to the 3rd Circuit in the Liddle case were paper-thin for the taxpayer. That return was prepared by someone I know, and the attorney involved was my boss for nine years, but not at the time of the court fights. If I recall, the bass in question had a cost of 30K, which was chump change then and still is. I advise musicians in the 2nd and 3rd Circuits that they are okay, but for a client who plays with a Midwest major symphony and has a $130,000 viola, that she is subject to possible disallowance on the depreciation at audit level.

Dennis (talk|edits) said:

16 December 2006
Perhaps your boss was different, D, but I do not know any lawyers who fear IRS "action." "No determinable useful life" for tangible personal property when the law clearly establishes a default class is at best amiguous. I will emphasize that I am not preparing these returns, only pointing out that as a group attorneys tend to be aggressive. I guarantee you that 20-30K in artwork on the walls will be expensed.

CrowJD (talk|edits) said:

16 December 2006
This discussion was very helpful, and I can tell I need to get up to speed on this. I mean, I can understand expensing some mass produced reproduction print, etc., but the thought that you could turn a nice profit on a decent artwork, while at the same time expensing or depreciating it never occurred to me, and I will be doing my research! A lot of my clients are designers, engineers architects and what surprises me is the gain that can be realized by buying say classic Herman Miller office furniture from say 60's.... I am depreciating/expensing this furniture that they use at present. [Dennis I agree about the lawyers not worrying, but I know in Atlanta there is something of a competition going on to see which firm can outdo the others, and they are getting press attention that they may regret! :) ].

Death&Taxes (talk|edits) said:

16 December 2006
I should disqualify myself from this disucssion for most of the time I see the useful life problem in an employee situation. Orchestras like the Philadelphia Orchestra want the musician to play the best instrument available, and will even arrange for loans to buy same, but when tax time comes, AMT takes its toll so that when I depreciate a six-figure violin for someone whose income rarely exceeds 150-200K, I am using as long as life as possible so the deductions do not go to waste, but with union dues, repairs etc you always run into AMT. And if they are sold I have to go back to prior years to see how much real tax benefit they achieved. And then, of course, what does one do with the interest paid on the violin loan? The midwest violist earns about 100K to play; it is not a case of 'fear of IRS' but 'how much is it going to cost to go through an audit,' especially if IRS decides this is the case to test another circuit. I recommend depreciation, but the client should know all the facts. I do let them know these cases will prevent penalty. I have had a number of audits of Orchestra string players and have never seen an auditor use the useful life argument, but these were all in Philadelphia which is 3rd circuit.

I am curious of Dennis & JD's opinions of Mr. Bass' Mayan Art client.

Dennis (talk|edits) said:

16 December 2006
I think (under MACRS) it is clearly deductible with 100% business use. Sealed case on a wall would be ideal. Remember though the discussion was about attorneys who have minimal audit cost.

CrowJD (talk|edits) said:

17 December 2006
D&T now this get's interesting re Mayan Art. Analysis: a) Is it used in a business? Well, yes, just as much as any decor would be. b) Exhaustible useful life? Well, see Dennis' post way above; and 7 yr MACRS class: ... Property that does not have a class life and isn't specifically assigned to any other MACRS class IRC 168 (e)(3)(C)(v). c) Subject to wear & tear: anything that sits in a business is subject to wear and tear in my opinion: knocked over, chipped, coffee spilt, broom handle through painting by mistake etc. To me, it seems that b) is the weakest link, which goes to the court decisions you and Dennis were speaking of. I don't see how you can distinguish Mayan Art from say a Warhol silk screen that may be worth a million, both are considered "important pieces". Another thing: where is this on the balance sheet: Investment, or asset with contra depreciation account.... well that's back to square one. I think Bass had a leg to appeal, but I'm not sure the result would have been any different.

Death&Taxes (talk|edits) said:

17 December 2006
JD: If it is your art, you can represent yourself all the way to Tax Court, and for only your time!!! I do think your clients would have a cow if you depreciated the art without telling them the risk, and then hit them with audit and court fees!!!! Art is so different from instruments which are subject to wear and tear. I know several cellists and bass players who have a 'cheap' piece of wood they use when they play outdoors in summer, just in case they are caught in a rainstorm or the like. Then again, I wonder if law firms might not hang copies of 'priceless' art and keep the originals in a vault, lest thieves break in! My late wife, who majored in oil painting at Boston Museum School and had her degree from Tufts, used to tell me that one famous modern artist's paintings would distengrate because of what he painted on, and she said the same regarding her gesso-ed canvasses.

CrowJD (talk|edits) said:

17 December 2006
Oh, I'm not doing this with any of my clients, I was just analysing how I might handle Bass' appeal there. I don't really think that Mayan Art has an exhaustible life, that's the weakness to the whole exercise. It seems to me that with musical instruments, these are essentially "machines" that produce sounds. One day, some day, those Strads and other fine Italian violins will wear out, or there will be so many repairs that not an original piece of wood is left. [The law firms: well they buy so much art that the partners have to store it at home, ugh, in the dining room. Then, they send the firm a bill for the storage costs].

Dennis (talk|edits) said:

17 December 2006
Do remember that the Liddle decision was before they changed the law.

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