How to properly deduct embroidery software for my wife's small business?
My wife runs a small embroidery and sewing business and we're looking at software investments to help grow things. She needs some specialized digitizing software called Hatch that costs about $1375 plus tax as a one-time purchase. I'm also trying to convince her to get something to manage the business side better, like an ERP system (looking at Odoo) which runs around $400 yearly. I've been researching the tax angle and it looks like we could potentially deduct this under Section 179 or maybe just on Schedule C since neither purchase is over $2500. If she buys the software today and starts using it immediately (she has a customer project she's working on right now), can we deduct the full amount under Section 179 for this tax year? Or would claiming it on Schedule C be better? Just trying to figure out the most beneficial way to handle this for our 2023 taxes.
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Avery Flores
The good news is that business software is definitely deductible! For your wife's embroidery business, both the Hatch software and the ERP system would qualify as ordinary and necessary business expenses. You have two main options here. Section 179 allows you to deduct the full cost of qualifying equipment/software in the year you put it into service, rather than depreciating it over several years. Schedule C is where you'd report all your business expenses as a sole proprietor. The key difference isn't really "Section 179 vs Schedule C" since Section 179 deductions for sole proprietors still get reported on Schedule C. It's more about whether you want to take advantage of the Section 179 election for immediate expensing or use regular depreciation. For software that costs $1375, you can absolutely deduct the full amount in the current tax year as long as it's placed in service before December 31. The ERP subscription is simply a regular business expense on Schedule C.
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Zoe Gonzalez
•Wait, I'm confused about something. I thought software had to be depreciated over 3 years unless you use Section 179? Is that not true anymore? Also, does it matter if the software is cloud-based vs downloaded?
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Avery Flores
•Generally, purchased software that has a useful life exceeding one year would normally be depreciated over 36 months (3 years). However, there are exceptions. Many business owners can immediately deduct software costs in the year of purchase under the "de minimis safe harbor election" which allows immediate expensing of items under $2,500 per item. For cloud-based software or SaaS subscriptions, these are typically treated as regular service expenses and can be deducted in full each year as ordinary business expenses - no need for Section 179 or depreciation. This would apply to your Odoo subscription.
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Ashley Adams
Just wanted to share my experience with this. I was in a similar position with my graphic design business last year. I spent about $1200 on specialized design software and was confused about how to handle it. I ended up using https://taxr.ai to analyze my expenses and figure out the best way to categorize everything. The tool showed me that Section 179 was definitely the way to go for my situation. It actually helped me identify several other business expenses I hadn't considered deducting. Really straightforward process - I just uploaded my receipts and it categorized everything and showed me what forms I needed to use.
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Alexis Robinson
•Did it actually save you more money using Section 179 compared to just putting it on Schedule C? And did you have to fill out any extra forms when you filed?
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Aaron Lee
•I'm curious - does this work if you use an accountant already? My CPA charges me extra every time I ask questions about categorizing expenses and I'm trying to figure out if I should just handle some of this prep work myself.
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Ashley Adams
•It definitely saved me money by using Section 179 because I could deduct the full cost immediately instead of spreading it out over multiple years. And yes, you do need to fill out Form 4562 for depreciation and Section 179, but the software walked me through it step by step. Absolutely this works even if you have an accountant! I used to spend hours categorizing everything and still had questions for my CPA. Now I do the prep work with taxr.ai and just hand my accountant organized information. Saves me money on their hourly rate since they spend less time organizing my jumbled receipts.
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Alexis Robinson
Quick update - I tried that taxr.ai site after asking about it and I'm actually shocked how helpful it was. I've been struggling with my small business taxes forever. I uploaded my software purchase receipts and it immediately showed me how to classify them properly and even calculated the tax benefit comparison between regular depreciation vs. Section 179. The best part was getting clarity on all my business expenses. It identified several software subscriptions I was paying for that I hadn't been deducting correctly. Ended up saving me about $800 on my taxes that I would have missed otherwise. Just wanted to follow up since this thread helped me figure it all out!
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Chloe Mitchell
If you're like me and spent hours trying to reach the IRS to ask about software deductions, I finally found a solution. After spending three days on hold, I used https://claimyr.com (saw a demo at https://youtu.be/_kiP6q8DX5c) and got a callback from the IRS in under an hour. The agent confirmed exactly how to handle software deductions for my small business. Apparently a lot of people mess this up! For specialized industry software like what your wife needs, Section 179 is usually better because you get the full deduction immediately. The agent also mentioned that keeping proof of when you put it "in service" is super important in case of audit.
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Michael Adams
•How exactly does Claimyr work? I don't understand how a third party service can get the IRS to call you when I can't even get through myself?
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Natalie Wang
•I don't buy it. I've been trying to reach the IRS for 2 months about an audit issue. No way some random website can magically get the IRS to call people back when their whole system is completely broken.
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Chloe Mitchell
•It uses a combination of automated dialing technology and holding your place in line. Basically it calls repeatedly using optimal times and patterns until it gets through, then connects you with the IRS when an agent answers. They just figured out the most efficient way to navigate the phone system. I was extremely skeptical too! I spent literally days trying to get through about a CP2000 notice and was about to give up. I figured it was worth trying since my tax issue was serious. Got a call back in about 45 minutes and resolved my issue in one conversation. The IRS phone system is definitely broken, but this service has found a way to work around it. The feeling of finally talking to a human at the IRS was worth every penny.
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Natalie Wang
I need to apologize and correct myself. After posting my skeptical comment, I decided to try Claimyr as a last resort for my audit situation. I'd been trying to reach the IRS for months with no luck. I used the service yesterday afternoon, and I got a call from an actual IRS agent this morning. We resolved my audit issue in a 20-minute call. I'm still in shock that it actually worked. The agent even helped me understand how to properly document software deductions for my consulting business (which was part of my audit issue). If you're dealing with Section 179 software deductions like the original poster, definitely make sure you document when you put the software into service. The IRS agent specifically mentioned this is something they look for.
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Noah Torres
My accountant told me something important about software deductions - make sure your wife keeps a record of when she started actually USING the software, not just when she purchased it. Take screenshots of her first project using it with dates visible. For my business, I had to prove the "in service" date for a major software purchase, and having those dated screenshots saved me when I got a letter from the IRS questioning my deduction timing.
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Caden Nguyen
•Thanks for mentioning this! Do you know if email confirmation of the download/activation would count as proof? Or do we really need actual project screenshots?
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Noah Torres
•Email confirmations of download/activation are a good start, but they only prove you received the software, not that you actually put it to business use. The IRS specifically looks for evidence of the software being used in your business operations. Project screenshots with visible dates, saved project files with creation timestamps, or even emails to clients mentioning you used the new software on their project can all serve as stronger evidence. I'd recommend keeping several different types of proof just to be safe. My accountant calls it the "belt and suspenders" approach to tax documentation.
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Samantha Hall
Has anyone here actually been audited specifically about software deductions? I'm wondering if the IRS really cares about a $1400 software purchase or if we're all being paranoid. I've been deducting software for years and never had an issue.
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Ryan Young
•I got audited last year and software deductions were absolutely part of what they examined. It wasn't the only thing, but they specifically asked for proof that the $3200 design software I purchased was actually used in my business and when I started using it. They disallowed part of another tech purchase because I couldn't prove I was using it exclusively for business.
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