Depreciated Assets Creating Net Loss

[ChrisR3]

I have been using TurboTax for many years with our small business and added some expensive depreciated assets last year with a life of 5 years. The business had a profit this year but when the depreciated assets are included it makes my business have a large net loss. Is this ok or am I at risk for an audit?

[MinhT1]

A net loss caused by depreciation of assets placed in service during the year is not necessarily a red flag for an IRS audit.

[AmeliesUncle]

I agree that it is not anything to be worried about, but on the other hand, it may not be in your best interest to do it that way.

Are you taking the full expense this year (such as through Bonus depreciation)?  Or are you spreading out the deduction over the 5 years or so?  It may be better to spread out the deduction.

[ChrisR3]

Yes it was spread out over 5 years. This will be the 2nd year.

[VictoriaD75]

If this is the 2nd year in the depreciation of the asset, you generally cannot change your depreciation method. As you have already spread the depreciation over the life of the asset, there is not much more you can do. You are required to take the depreciation on the assets.

As stated above, you should not worry that this leads to a net loss for the business. A trade or business for tax purposes is defined as any activity engaged in for profit. You do not have to actually make a profit, but should be seeking to make a profit through regular and continual effort.