Misc tax questions

[taxdean]

TTax asks me something like - is this the last Schedule K-1 you “expect” to receive.  By using the word "expect", I assume it will not be a big deal if I turn out to be wrong in answering yes, correct? I am on the fence, frankly.

Mostly because both of my parents got ill and passed away in early 2021, I forgot to make my first estimated tax payment on time and penalties are due.  So, I am applying for relief based on those circumstances.  Ttax then says I owe no penalties yet and then says form 2210 is required.  Does that mean TTax will automatically add that form for me to fill out, or will I need to find it manually?

TTax asked me if all of my business is generated from my home office.  Does anyone know if this needs to be 100% to get the full home office deductions that I would get if I answered 100%?  It is certainly at least 95%.

I generate EXCEL templates as my line of business on Schedule C and run simulations, so I got two new computers in 2021.  Are those supposed to be listed as Section 179 property and, if so, what is the ramifications of such compared to listing it as an office expense?

Thanks much, folks.  Please answer whichever ones you know, even if you don't know all of the answers. 

[ColeenD3]

1) Yes, TurboTax will give you Form 2210.

2) They are asking about being physically in the office to run your business. For example, if you were a salesman who made visits to clients, you would not be using the office at that time. You put whatever the actual percentage is.

3) If you are not going to continue your business do not take a Section 179 expense. You can use MACRS and depreciate them over their 5-year useful lives. That way, if the business folds, you do not have to recapture depreciation.

[taxdean]

Regarding #2, because of covid, no client visited my office in 2021.  Nor did I visit any of theirs.  So, I guess it is 100%.

Regarding #3, I assume you are cautioning me to avoid S179 if there is some decent chance that the business will close before 4 more years, right?  If so, sounds like good advice as I am getting up there in years.   On the two OTHER eligible assets, I went through the TTax algorithm and, as I best recall, because the asset's cost (two computers actually, as I am a computer consultant) were each less than $2,500, I think it did not really tell me if it was defaulting to S179 or not.  Can you clarify what I might have run up against and what is the better choice for that, if indeed there is any choice that mattered?

Thanks much!

Dean

[taxdean]

This is an update: Per your suggestion, to avoid recapture if I retire in a year or three (although I wonder if it completely avoids such), I changed the computers from Section 179 to 100% special depreciation allowance.  It made no change whatsoever to my federal tax bill but a sizable change to my state tax bill.  I assume the latter is because my state (CA) is less liberal on accelerated depreciation/S179.  What I don't understand is why the Federal tax due did not change at all.   To be clear, I am not subject to AMT or anything like that. 

Does my choice between the two above, for any of the three items that I could choose one method or the other for, have anything to do with whether the cost of certain items exceed $2,500?

Thanks!

[AliciaP1]

If your purchases were less than $2,500 each, they can be directly expensed rather than capitalized and depreciated in any form.  This eliminates depreciation recapture all around.

There is a small difference between the Section 179 and Special Depreciation Allowance recapture, but the two methods look the same for most assets in the year the asset is placed in service.

@taxdean

[taxdean]

Thanks but I am still a little confused.  If I buy a new computer (5 year life is what the IRS assigns as I recall), are you saying it can be treated like any other business expense, in particular like purchases for things whose life is one year or less?  Or do I, indeed, need to elect this special treatment in order to "expense" it?  In your answer, please keep in mind that I am NOT an accountant and may not even truly understand what "expense" it means, other than that I do not need to keep any cost basis or do any depreciation - I think!  All else equal, I would rather not deal with depreciation if it is not really necessary.

[KrisD15]

If I buy a new computer (5 year life is what the IRS assigns as I recall), are you saying it can be treated like any other business expense, in particular like purchases for things whose life is one year or less?  Or do I, indeed, need to elect this special treatment in order to "expense" it?  

You can elect to use Section 179 Deduction which allows the total cost or value to be used that year (against your business income, therefore having the same effect as an expense) rather than spreading depreciation over 5 years. 

It is still entered as an asset, and if eligible (must be purchased new that tax year) the program asks if you wish to use that option.