How to remove spouse from Business Income and Expenses

[untuit]

For prior years my wife was involved in our business and we allocated portions of income and expenses between us. For 2021 she wasn't involved. When initializing turbotax for 2021 where it allows you to dis-include elements of the 2020 tax return (like interest income from various banks etc) there was an entry for her business activity carried forward from 2020. I told turbotax to NOT include that for 2021, but as soon as I moved forward in the wizard, it notified me that it couldn't remove that entry. I'm guessing this was because there is some tiny amount for depreciation that stretches for years? In any case....do I just zero out all of the categories in Business Income and Expenses for her and leave it at that?

[Carl]

How did you two report business income/expenses on your 2020 tax return? Did you each file a SCH C as a part of your joint 1040 tax return, with each claiming 50% of everything?  Or was this done some other way?

[Carl]

Oh, it may also matter why you need to do this. Divorce or separation? Also, is your filing status for 2021 still MFJ, or something else now?

[untuit]

Yes MFJ and two schedule Cs. The two C's was probably never a good idea, that approach was inherited from my last accountant.

I'm undoing it for a couple of reasons, one is that she just isn't involved in the biz any more.

[Carl]

Probably the easiest way to do this is to first print out both SCH C's *and* the supporting documents and worksheets from the 2020 tax return. (Such as the four 4562's that print in landscape format if the business has any assets)

Then delete both SCH C's from the 2021 tax return and start a new SCH C. You'll need to combine the data from the 2020 SCH C's and supporting documents, onto the one 2021 SCH C. For example, you'll have to show the total prior year's depreciation on all assets from both of the 2020 4562's, on your one 2021 form 4562. Same holds true for COGS and business vehicle use if applicable.

Lots of manually work and math on your part. But it is what it is.

[untuit]

Thank you Carl, that makes a lot of sense.

[untuit]

It appears that the only "complex" part of the C for my wife is a single depreciation entry, where an asset purchase was divided between the two C's in 2012. Others kinds of expenses that might have been split are already on my own C. Could I not simply delete her C for 2021, and adjust the depreciation entry on my side?

[untuit]

When I went into the step by step view in the depr section, ttax suggested that the amount was so small that it ought to be written off as an expense. I'd love to convert it to an expense in order to simplify things. But I'm also not sure how long computer related items are supposed to be depreciated for - this one was purchased in 2012 so it's been ten years. I wonder if I ought to simply delete her C, with this depreciated item, and then use the Stopped using an asset for your business in 2021" for my side, or find some other way to dismiss it...or else convert to expense. I'd assume that ttax would know how to convert my depr item to an expense properly.

[untuit]

Oh - the worksheet etc show "Life" as 5, which must mean period to depr over, and current depr is 0. I was going to ask shouldn't this depr be over and done with after 10 years - and it is.

I think it means I can simply delete her C from the forms view. Does that make sense?

[Carl]

Not sure what you're asking. But a business asset is never removed from the business assets section even after fully depreciated. That's because that depreciation has to be accounted for in the tax year the asset is sold or otherwise disposed of. Once the asset is sold or disposed of, it can be deleted from the assets list in the tax year after the sale or disposition.

[untuit]

I'd mark some of them as disposed of, then. The item listed on the going away C is certainly disposed of. The same item is represented on my portion of the return.

Do you think I could just toss her C, which only has that one low amount depr item that has been disposed of, and then have nothing to do on my C? I can't see why not but all of this is pretty opaque to me.

Thank you for your help, it's greatly appreciated.

[Carl]

I'd mark some of them as disposed of, then.

You can't do that if the asset is still in use in the business. Remember, the depreciation must be accounted for at some point. To say you disposed of the asset when you did not, and especially if/when you are still using it in the business is not correct.

[untuit]

That printer was recycled years ago.

[DianeW777]

If the printer was disposed of, not sold, but junked for recycling you can definitely say the asset was disposed of and remove it from your depreciation schedule.  

You can delete her Schedule C if this was the only asset on depreciation.  As pointed out by our awesome Tax Champ @Carl, until an asset is actually disposed of or sold you are required to account for them and any sale will result in taxable gain to the extent of your depreciation deduction over the years.

[Carl]

If the printer was disposed of, not sold, but junked for recycling you can definitely say the asset was disposed of and remove it from your depreciation schedule.

To clarify, if the printer was disposed of in 2021 or before, then you will indicate as such on the 2021 tax return if you did not do so on an earlier year tax return. You will *Not* delete the asset from the 2021 tax return after labeling it as being disposed off. You will delete it from the 2022 tax return if it gets imported to that return next year.