Musician's 401G

[T. C. Furlong]

I thought this might be an appropriate time to bring up the subject of steel guitars as an investment...especially in light of the major losses in the stock market and people's 401K or IRA retirement plans diminishing.

In the world of vintage guitars, there has been a steady and very favorable return on investment assuming that the investor knows the market and invests carefully. If one has stayed in "Blue Chip" instruments, the average return on investment has been well above 20 percent per year. I asked a major vintage guitar dealer last week what he was seeing in guitar sales given the economic downturn. He said that sales are the same as in a good economy and the market seems to be immune to volitility.

The vintage steel guitar market is not as broad as the vintage guitar market, so it may be much less immune to fluctuations and the economy.

My take on it is this. A mutual fund is not very interesting to most people. There is no "art" factor and you can't really enjoy it while you are waiting for it to mature. A 1965 Emmons Wraparound is, in my opinion, art, history, utilitarian and if you can't enjoy it by playing it, you might want to find a new hobby or profession.

Steel guitars require very little work to keep them appreciating (unlike a vintage car). They are relatively easy to store and playing one can make your day. I have come home from a tough day at work, sat down behind a wonderful investment grade steel and the work stuff doesn't seem to matter nearly as much. I challenge a mutual fund or a money market to do that, especially when it is dropping in value.

The down side of steel guitars as an investment is that the asset is not liquid and does take effort to liquidate. I say "big deal, you enjoyed owning it".

I know steel guitars as an investment has been discussed on this forum in the past. I would appreciate any thoughts forumites might have in light of the current economic downturn.

TC

PS: A 401G is like a 401K - G meaning guitar . Wouldn't it be great if the IRS code would allow qualified money to buy collectable instruments? I am thinking of trying to figure out a way to do this very thing.

[Bill Hatcher]

PS: A 401G is like a 401K - G meaning guitar . Wouldn't it be great if the IRS code would allow qualified money to buy collectable instruments? I am thinking of trying to figure out a way to do this very thing.

Buy them and write them off on Section 179 of Schedule C. If you bought a $5000 Steel, you can write the whole thing off just like a ditch digger writes off a $5000 tractor. The cash comes right off your 1099 income on Profit and Loss schedule C. You keep the guitar as long as you want and then when you sell it, you then deal with the profit on it.

All this is predicated on you receiving 1099 income from gigs. You then can proove to IRS that your music is not some kind of a hobby.

[T. C. Furlong]

Thanks for the reminder Bill. You would then need to pay income tax on the entire amount of the sale when you sell the instrument, which is similar to an IRA. Also, a lot of folks have a situation in which their employer will match their contribution to their retirement account. Wouldn't it be great to have part of your retirement money in a great steel (or six) half of which was paid for by your employer?
TC

[Jerry Erickson]

TC, are you hiring?:) Dyke and I would like to apply if you have the above stated "perks".

[Bob Hoffnar]

You can also file for depreciation on some working musical instruments. Used that feature of scedual C last year for the first time and it pulled me out of the weeds.

I have sold a few investment grade pedal steels over the last couple years and didn't make much profit. Being as I needed the money I priced them to sell without much hassle.

[Bill Hatcher]

You can also file for depreciation on some working musical instruments. Used that feature of scedual C last year for the first time and it pulled me out of the weeds.

.

Bob. You don't have to depreciate it. Just write it ALL off under 179. The limit you used to be able to write off was $10,000 but now I think it is $100,000.

You could buy a $5,000 steel and write off the whole guitar if you wanted to. I do not do depreciation any more. I would rather buy some gear each year and write that off than pay the same amount of money in taxes. The tax code is set up to encourage business investment by giving you this Section179 write off rather than taking 10 years or more to write off something. A computer is worthless in just a few years to a business, or a car or machines Etc. The feds set this up to give business an incentive to buy some new gear...take advantage of it!