Depreciation for small buainess

[confusedrf]

In 2014 my wife remodeled her very small beauty shop. This included new desk ceiling tiles blinds floor etc. Turbo taxes taken care of depreciation each year.

However last year I lost a hard drive on my computer and lost 2 years of ax returns. I have Printed copies just not the file on my PC Turbo tax looks for so... I am on my own for filling this out thos year....if I even need to.

I know nothing about the depreciation but I can tell you looking at last year's filing , the depreciable basis was 3855..This is what her remodel cost in 2014.  The prior depreciation was up to 3683  and last year's current depreciation was 172. If it matters it seems the method was 200DB/HY.

.

My concern is I have no clue what to type in here for this year ....if anything... It seems like the original amount we spent was 3855 and if i read this right 3683 has been depreciated  as of last year.

Do I even need to enter anything? Has this all been depreciated? What should I do? Thanks everyone.

[JosephS1]

On a net income basis for this year there is nothing you need do as there will be no depreciation taken.  However, in the "Asset" section of the business you should consider entering the information pertaining to each asset that is/was part of the business. This may be needed in case in the future there are any sales complications should your wife sell and/or retire.  While it may sound unfair, when an asset is sold that utilized accelerated depreciation, of which 200DB is one method, as opposed to straight line depreciation (equal amounts each year), there may be what is called "recapture" on the excess depreciation.  It does not appear to be a problem in this case but it always is a benefit to having everything listed and accounted for.

@confusedrf 

[Carl]

You have the 2021 printouts. So this will be fairly simple. Just a lot of typing on your part, is all.

In the 2021 printout you have two form 4562's that business. They both print in landscape format. One is titled "Depreciation and Amortization Report" and is mostly likely the only one you'll need. The other is titled "Alternative Minimum Tax Depreciation" and you'll need that only if the program asks you for AMT amounts.

Refer to the first 4562 when manually entering all of your assets again. You will enter things exactly as they appear on the 2021 form 4562. There are some things that won't be the same, and I cover those now.

When entering the assets, you will of course use the original in service date as shown on the 2021 form 4562. The program (not you) will figure as best it can, the prior depreciation already taken. When it displays that prior depreciation, you can change it if necessary. But to confirm it's correct:

On the 2021 form 4562 add together the amounts in the "Prior year deprec" column and the "current year deprec" column. That total will be the total amount of prior year's depreciation already taken prior to your 2022 tax year. If what the program figures is not spot on, it will be within a few bucks, and that's fine. However, you can change it to match exactly if desired. I suggest you make it match exactly.

When done, print out the form 4562 (the landscape one) to confirm certain things match up. Columns that need to match up are:

Asset Description:  Keep this identical, as it makes things easier if you ever have to refer to depreciation history, or if you get audited.

Code: Must match. If it doesn't, you selected the wrong MACRS asset type.

Date in Service: Must match. No explaining necessary.

Cost (Net of Land): Must match

Land: Must match. Will be blank for non-real estate assets.

Bus Use %: musth match, assuming the business use percentage is the same every year.

Section 179: Will be an amount in this column only on those assets you took a SEC179 deduction on. That deduction would have been taken the tax year the asset was placed in service. If there is an amount there, they must match.

Special Depreciation Allowance: Will be an amount in this column only on those assets you took the SDA deduction on. That deduction would have been taken the tax year the asset was placed in service. If there is an amount there, they must match.

Depreciable Basis: Must match. No exceptions. Period.

Life:  Must match. No exceptions. Period.

Method/Convention: Must match. No exceptions. Period.

Prior Depreciation: Will not match. If the asset is still being depreciated, the amount here will be higher on the 2022 form 4562. If the asset was fully depreciated in 2021 or earlier, the amount will be the same as on the 2021 form 4562. Under no circumstances can the 2022 amount be lower than the 2021 amount shown in this column.

Current Depreciation: For assets not yet fully depreciated, this amount will be the same on the 2022 form 4562 (or within a few bucks)  as it is on the 2021 from 4562. Depending on a few factors, it "could" be lower (such as if this is the last year of depreciation taken to fully depreciate the asset.) But it will never be higher.

[confusedrf]

Well I entered a big long post on all the issues I was having keying in the data. However I don't see my post here so maybe that's a good thing. I deleted everything and started over and now I have all my information and it look similar to last years except the prior depreciations are all off. Current depreciation is always 0 which is probably right the lifetime said 7 years and it's been 7 years. But the prior depreciation column does not match last years sheet. The difference between my original cost and prior depreciation is now about $600 where is last yesr it was bout a $172.  Can I somehow update the prior depreciation column.

[Carl]

But the prior depreciation column does not match last years sheet.

I'm confident its just a data entry error on your part. Easy to do when someone (such as myself) doesn't provide enough clarity about how to do this. I suspect I may have lacked clarity somewhere. Let's double-check something here.

For both years, confirm you're looking at the sheet titled "Depreciation and Amortization Report" and not the other sheet titled "Alternative Minimum Tax Depreciation Report"

On last year's sheet, the 2021 form 4562, if you add together the amounts in the "prior year's deprec" column and the "current year deprec" column, that total should match the 2022 form 4562 "prior year's deprec" column. If it does, then you're good to go and all is right. If this doesn't match, then give me the numbers in those two columns from both the 2021 and the 2022 form 4562's so we can figure it out.

[confusedrf]

So I'm looking at form 4562 printed from last year versus form 45624 tax year 2022.

The totals from prior year 2021 show cost net of land 3855, depreciable basis 3855 prior depreciation 3683 current appreciation 172.

The current tax year 4562 shows cost of land 3855, depreciable basis 3855 prior depreciation 3466, current depreciation 0.

I have no idea if this is correct or not.

I can tell you that in last year's 2021 filing each item had a current appreciation value whereas this year's has 0 it feels like that's because it's been fully depreciated but I'm not sure what the 3466 number is trying to tell me.

Again assuming the life being 7 years.. this stuff should be fully depreciated..right?   I just want to make sure things look right.... I don't want to draw any undue attention to myself!

The only other thing was there was a question that said words to the effect of in the 1st year did you take an extra depreciation and I answered that question no for each item.. not sure this has anything to do with any of this. 

Thanks!

[Carl]

he totals from prior year 2021 show cost net of land 3855, depreciable basis 3855 prior depreciation 3683 current appreciation 172.

So 3855 plus 172 equals 3855. So the asset was fully depreciated at the end of 2021.

The current tax year 4562 shows cost of land 3855, depreciable basis 3855 prior depreciation 3466, current depreciation 0.

Obviously a typo on your part for prior depreciation on the 2022 form 4562. The prior depreciation for this asset on the 2022 form 4562 reads 3855. If it does not, then you entered a figure incorrectly in the TTX 2022 program. But I think it's a mis-read and a typo on your part, since it correctly shows 0 depreciation for 2022. This indicates as you suspect/expect, that as of the end of 2021 the asset is fully depreciated.

The only other thing was there was a question that said words to the effect of in the 1st year did you take an extra depreciation and I answered that question no for each item.. not sure this has anything to do with any of this.

If any listed asset has an amount more than zero in either the Section 179 column or the Special Depreciation Allowance column, then you would answer that specific question YES. But that doesn't apply to this specific asset. If it did and you answered that question incorrectly, you're numbers would be way, way off.

[confusedrf]

Hey thanks I'm back online after a long day yesterday.

No the prior depreciation adds up to 3466. Current appreciation is 0 the depreciable basis 3855 net cost of land 3855.

I did not enter any values in prior depreciation....it seems to be calculating it... As I said last year it added up to 3683 and had shown 172 in the current appreciation which yes adds up to 3855. I would have expected this year the prior depreciation to somehow add up to 3855. Alternatively I would have expected some current drepreciation But all values are 0. So somehow prior to appreciation is being calculated and not calculated correctly from what I can see.

[Carl]

Something's not right here. One of us is missing something. So lets do this.

I know this seems redundant, unnecessary and time consuming. But when dealing in a text based communications medium such as this forum, it's way to easy for either party in this type of communication medium to miss something, and miss it multiple times.One of us is definitely missing something.

Print out the 4562's from both 2021 and 2022. Confirm you print the one that is titled at the top, "Depreciation and Amortization Report". After printing, lay them both side-by-side and use a straight edge of some sort (ruler or whatever) to put on the row of the asset in question here. This is just to ensure your eyes don't shift up or down a row as you look back and forth between the two forms to confirm things.

Let me start by numbering the columns.

1. Asset Description

2. Code

3. Date in Service

4. Cost (net of land)

5. Land

6. Bus use %

7. Section 179

8. Special Depreciation Allowance

9. Depreciable basis

10. Life

11. Method/Convention

12. Prior Depreciation

13. Current Depreciation

Now of all the columns I listed/numbered above, the first eleven columns must match exactly. If they do not, then work through the asset again (on the 2022 return of course) to find your different entry, and make it match.

Don't worry about columns 12 and 13 at this time. We'll deal with those once I'm convinced the first 11 columns match exactly, with no exceptions of any type.

[confusedrf]

Here is what I see...assuming it let's me attach....the pc shot is 2022...

[Carl]

@confusedrf I see several problems.

For starters, and this is a biggie, I don't see the property itself listed. This is going to bite you when you sell the property. In the tax year you sell, you are required to recapture all depreciation taken and pay taxes on it. If you did not depreciate the asset (and I don't see depreciation for the property itself) then you are required to recapture the depreciation you "should" have taken, and *still* pay taxes on it.

To fix the above situation is not a simple matter. It requires you to file IRS Form 3115-Change in Accounting Method. While the TurboTax program does include this form, it *is* *not* *simple* by any stretch of the imagination. Therefore, professional help is *highly* recommended.

For the problem we're working here, I was of the understanding that the numbers you were providing were for one single asset. Apparently (and obviously now) that's not the case. YOu were providing me totals. Can't help in any way with just totals. Your problems are in three of the assets you have listed. Fixing those will get the totals correct. So lets move on to fixing the problems with the existing, listed assets.

On your 2022 return you need to work through each asset below and change the "prior year's depreciation" amount. Making the below changes will "make things right". Just work through each asset one at a time, and when you come to the screen that shows you the depreciation already taken, you can edit/change it. Just change it, and click the continue button to move on through to the next asset you need to correct.

Item #4 - Lighting - Prior year depreciation should be $212.

How I got that number.

On the 2021 form add together the amount in the "prior depreciation column" ($203) and the "current depreciation" column ($9) and that gives you the total "prior depreciation" for 2022, which is $212.

Item #5 - Ceiling Tile - Prior year depreciation should be $190

Item #6 - Vertical Blinds - Prior year depreciation should be $375

[confusedrf]

Thanks. Also, We rent the building.

[Carl]

We rent the building.

Ah okay. That explains it then. While I know exactly what your intended meaning is with the above statement, depending on the context it can be misinterpreted to mean "we rent out the building", instead of "we pay rent for the building".  But I know you mean the latter in this case.

Did the above changes fix the problem?

[confusedrf]

I will try this evening...THANKS!!!

[confusedrf]

That  worked...thanks!