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data recovery software

TL;DR

Data recovery software is generally deductible as a business expense if it is used for business purposes, but not if it is used for personal reasons.

Detailed Answer

Data recovery software can be deducted as a business expense under IRC §162 if it is ordinary and necessary for your trade or business. This means if you use the software to recover business-related data, such as client files or financial records, it is deductible. However, if the software is used for personal data recovery, it is not deductible. For mixed-use scenarios, only the portion used for business purposes is deductible. For example, if a freelance photographer uses the software to recover lost client photos, this is deductible. Conversely, recovering personal vacation photos would not be deductible.

Where to Put It on the Tax Form

Schedule C, Line 27a

Real World Example

A freelance graphic designer purchases data recovery software for $150 to retrieve lost client project files. The designer can deduct the full $150 as a business expense on Schedule C, Line 27a, since the software was used entirely for business purposes.

Audit Risk & Documentation Tips

The audit risk is moderate. To substantiate this deduction, keep the purchase receipt, a description of the software's use, and any logs or records showing the business purpose of the data recovered. If the software is used for both personal and business purposes, maintain a log to document the percentage of business use.

IRS Reference

IRC §162

Relevant Industries

FreelancersConsultantsIT ProfessionalsPhotographersSmall Business Owners

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on October 18, 2025

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