Business Assets Summary screen shows assets from previous years tax returns, what do I do with them

[Nate402]

When I load up Turbo Tax 2021 and choose to Start a New Return, I choose to "Transfer Return" from the previous year.

I have a full time job and also have a side business for web design and video/photo services.

In 2020, I entered two cameras I purchased for my business as Business Assets and chose to deduct the full value of the item and took the Section 179 deduction. I bought a new computer in 2021 for my business that cost $2,000 and plan to enter it as a Business Asset on this year's tax return.

When I get to the section on Business Assets for this year's 2021 tax return, on the screen that says, "Now let's review each item you bought", and I click on the radio button "Every item I bought costs $2,500 or less", there is a little message below it that says:

"OK, next we'll review some assets you've previously entered. Once you're done with that, make sure these purchases are entered as other miscellaneous expenses, not assets."

What does this little message mean? It's confusing me.

So, when I go to the "Business Assets Summary" screen, it shows the two cameras I purchased in 2020 that I claimed as the Section 179 deduction last year, with a "Placed in Service" date of 5/20/2020 (which is the date I began using them.)

This screen says, "Select Edit if you either stopped using an asset for your business in 2021, or change the percentage of time you used an asset for business purposes (vs. personal)".

I still used these two cameras in 2021 and the percentage of time used for business purposes did not changed and was still 100%.

I have two questions:

1) I assume I will enter the new computer I bought in 2021 for my side business as a new asset on this screen. Is this correct?

2) What about the two cameras that are already listed on this screen from last year's tax return? Do I just leave them there? Or do I delete them? I assume they were transferred over because I chose to transfer my return from the previous year when I first loaded up Turbo Tax 2021.

The little message on the previous screen said once I'm done reviewing to "make sure these purchases are entered as other miscellaneous expenses, not assets." How is that message related to my situation?

I don't know what I'm supposed to do here. When I add the computer I bought in 2021 as an asset using the Section 179 deduction, it adds that Section 179 value to the total Section 179 value of the two cameras from 2020. Doesn't this mean the two cameras are getting deducted twice (once in 2020 and again in 2021)? And if so, doesn't this mean I should delete the two cameras from 2020 on this year's return because I took the Section 179 deduction for them in 2020?

Or does Turbo Tax know these two cameras were deducted in 2020 based on the "Placed in Service" date on the Business Asset Summary screen, which are from 2020. If so, does this mean Turbo Tax is NOT counting the two cameras towards my Business Assets in 2021, thus the two camera are there ONLY for tracking purposes?

Thank you so much for your help.

[JamesG1]

Enter the new asset purchased in 2021 at this screen.  You may elect special depreciation or the 179 deduction to claim the entire cost of the new asset on the current year's tax return.

Do not delete or change the entries for your two cameras.  The assets will remain in your asset summary.  You may return to them at some point down the road if the assets are disposed of or sold.

You said 

"OK, next we'll review some assets you've previously entered. Once you're done with that, make sure these purchases are entered as other miscellaneous expenses, not assets."

You made the annual election to deduct items $2,500 or less as expenses rather than depreciating the items over multiple years.  The statement wants you to re-characterize assets that were purchased in 2021, not 2020.  

You may bypass this entry at the screen Now, let's review each item you bought by selecting Some items I bought.... rather than Every item I bought..... 

The software knows that the cameras were purchased in 2020 but you may want to review the entries on IRS Form 4562 line 2.  IRS Form 4562 Instructions page 3 states:

Line 2 

Enter the total cost of all section 179 property you placed in service during the tax year....

View the form at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.

[Nate402]

Thank you so much for this information @JamesG1! This makes complete sense to me.

I had one follow up question if you have a chance?

I've had my side business for a few years. For the past few tax returns, when I've claimed a business asset, I've always just took the Section 179 deduction. I didn't realize until now that I was supposed to leave previous years' assets on the following year's tax return.

The business assets I claimed with the Section 179 deduction in 2018, I ended up deleting off my 2019 tax return. And the business assets I claimed with the Section 179 deduction in 2019, I ended up deleting off my 2020 tax return. I didn't do this on purpose; I was unaware I was supposed to leave them on. This was my ignorance. All those business assets I still own and still use 100% for my business. Obviously, going forward, I will leave all the previous years business assets on my future tax returns, now that I know not to delete them.

My question is should I add back the business assets from 2018 and 2019 that I took the 179 deduction on to this year's 2021 tax return? Or just focus on doing this correctly going forward, in which I would leave the 2020 assets on this years' return, and going forward.

Would adding assets from my 2018 and 2019 returns back to my 2021 return raise a flag on my tax return because they have not been on the previous few years' tax returns since I deleted them each year? If I should add them back to my 2021 return, then my 2021 return would have business assets from 2018, 2019, 2020, and the new asset I purchased in 2021.

Oh, also, how long do business assets stay on tax returns if I don't sell them and continue using them 100% for business? Forever? A certain number of years? Or is each type of asset different?

Thank you so much for your help. I frustrated with myself for not realizing I needed to leave previous year's assets on future tax returns, but I am fortunate to know now. Thank you again for your help.

[JamesG1]

First, I would concentrate on completing the 2021 tax returns.

Then, if time permits, add the 2018 and 2019 back into your Federal tax return.  Be careful with the dates and the 179 deduction entry.

After entering each asset, go through Federal Review and see whether there are any changes to the bottom line of either your Federal or state tax return.  I do not expect that to be the case but you want to be sure.

The IRS should be pleased that you are trying to report correctly but maintain a record of what you did should the IRS inquire.

There is a small possibility that the Qualified Business Income Deduction is affected by the change in your business assets.  The unadjusted basis of your business property (UBIA) captures the total of business property purchases for the last ten years and uses that number in the computation of the QBID.

I recommend that you not delete any assets, even after the assets are fully depreciated or after the assets are disposed of or sold.

[Nate402]

Thank you so much @JamesG1 for this information. I also understand this completely and am now very confident going forward with the Business Assets part of my filings.

I saw you mentioned Qualified Business Income Deduction. I have never chosen this deduction and have always selected "None of this work is qualified" on the screen asking about Qualified Business Income.

I thought that since this is only side work I do that's in addition to my full time job, and since it's only me doing it and I do it under my own SSN (no EIN number), that it would not be eligible for the Qualified Business Income. I only make a few thousand dollars in a given year on side work depending if I have the time. So I didn't think I would qualify for the QBI.

Was this also a mistake I made? Is the QBI for any business regardless if it's side work and it doesn't generate much income? Should I have chosen to get the QBI deduction? My side work is just helping people and small organizations build their website, create ads for social media, and editing videos.

Thank you so much.

[JamesG1]

You may qualify for the Qualified Business Income Deduction.  Even side income sources may qualify for the deduction.  Answer the questions that TurboTax poses to see whether you qualify.

This IRS FAQ states:

Many individuals, including owners of businesses operated through sole proprietorships, partnerships, S corporations, trusts and estates may be eligible for a qualified business income deduction, also called the section 199A deduction. Some trusts and estates may also claim the deduction directly.

The deduction allows them to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

[Nate402]

Thank you for this! If I do qualify, would the IRS think it's weird if I took it this year despite the fact I did not take it for the past 3 years? They wouldn't know I didn't understand what it was the last few years and that's why I didn't take it.

And even if I do qualify, can I choose not to take it? Would that reduce my chance of an audit?

[PatriciaV]

QBI is an election, so you are not required to take this deduction, although it's offered to lower your taxes. Audit risk is very low for most tax returns. QBI will not influence your chance of an audit.