Taxing times
Chances are, you pay too much tax. Millions of Americans overpay; in fact, it's likely that you missed a major tax cut by neglecting to deduct the cash you spent on computer and entertainment equipment.

It's true: If you're a small business owner, you're entitled by law to deduct work-related items. If you're self-employed, the line between your work and home lives is probably almost invisible.

We consulted several tax pros as well as an IRS tax lawyer to find out how to make the tax system work for you. In a nutshell, you'll need to remain levelheaded and not get caught up in a shopping frenzy. "It all comes down to being reasonable," advises Leo L. Marzen, a top New York tax preparer. "If you're going to be a pig about it, sooner or later you're going to get caught." In other words, that Ferrari Enzo or the $12,000 home-theater projector will ring IRS alarm bells, while writing off your monthly cell phone bill would make sense on paper.

Be careful, though, because nobody looks forward to an IRS audit. If tax inspectors prevail in an audit, you'll not only have to pay up for the amount you deducted, you'll also be responsible for interest and penalties. So, be on the safe side: before you buy, justify. Figure out a scenario to rationalize your purchases as an essential part of your work. Put your plan in writing and keep a log of when you use the gear for work so that it'll be easy to prove that you really do use your gear to make money. "There's a right way and a wrong way to do this," adds Denis P. Monaghan, a New York tax preparer. "Doing it right isn't hard and [it's] well worth the effort." If you're in doubt, Monaghan's advice is to "go halfsies with the government" and claim only half the price of your gear.

When you itemize your deductions, you can't use the 1040EZ form, and all of your deductions must add up to at least 2 percent of your income, or you can't itemize at all. For example, if you made $50,000 last year, you'd need to deduct at least $1,000--or about the cost of an entry-level notebook--to be able to claim those expenses.

And ironically, the more money you make, the more you can save. For instance, those with an annual salary of $25,000 get about an 8 percent rebate from the IRS on expenses, while those lucky enough to be making more than $100,000 per year can get roughly 35 percent back. For a $2,500 notebook, that adds up to $200 for the former or a whopping $850 off the price tag for the latter.

If you keep deductions in mind when you make your purchases and you keep good records, Uncle Sam can help you mix business with pleasure. But before you reach for your credit card, make sure you can justify your purchase as a business need.