From CPA to TurboTax can trigger Audit?

[spat001]

Hello.

We decided to move from our CPA for our S-Corp and Personal & Business taxes to TurboTax. We are finding many inaccuracies in the previous tax returns prepared by our CPA, since we started doing this ourselves.  We are trying to be very careful and making sure everything there is 100% accurate.

Does the IRS compare previous returns with the current one? Since there will be some differences, is this a red flag for an IRS audit?

Thanks for any insights.

[Anonymous_]

What type of inaccuracies are you finding? You might want to discuss any anomalies with your CPA.

[AmyC]

Changing from a CPA to self prepared will not trigger an audit. Changing which line an expense goes on will not normally trigger an audit. Changing the method of depreciation would raise an eyebrow. You want to maintain things like method of depreciation and time period. Some of these changes may not be a big deal at all. You definitely want to move forward correctly. If the changes don't affect the bottom line, it is not as much of a concern.

[spat001]

Thanks Amy.

Depreciation schedule is the only one that I am not very sure about. The depreciation schedule obtained from the CPA says MACRS where as TurboTax used 200DB.

Is there a way to make TurboTax use MACRS?

Thanks a lot! 

[spat001]

Amy, another concern I have is about the depreciation for the Rental Property that we own. The depreciation schedule that we obtained from the CPA has a current year depreciation and the next year depreciation in it. The next year depreciation (in the schedule that the CPA gave) should match the depreciation that TurboTax has calculated for me for the year 2020, and they do not seem to match.

In fact, TurboTax depreciation is much lower than what the CPA calculated. For the Rental Real Estate, the convention used is MACRS, depreciating over 27.5 years. What could be going on?

[ThomasM125]

TurboTax also uses MACRS 200% double declining balance. The real estate is depreciated using straight line over 27.5 years under MACRS though. 

What might be happening is that you are including the land in the cost of the property, which it should not be, since it is not depreciable. Also, you need to make sure you enter the correct date the property was first put into service, as the depreciation in the first year will be less than a full year unless put into service in the first month of the tax year.

You can do an easy calculation to determine what the yearly and accumulated depreciation should be on real estate, as you just divide the cost by 27.5 and that is the yearly depreciation, so multiply that by the number of years the property is in service to  get the accumulated depreciation.

Also, commercial property is written off over 39 years, not 27.5.

Further, it is possible that accelerated depreciation was taken on some assets, like section 179 or bonus depreciation, that would result in a large portion of asset cost being written off in the year the property was put into service.

[spat001]

The CPA had included the cost of the land also while calculating the deduction. His deduction is almost double what I am getting from TurboTax.

I have entered all the numbers correctly within TurboTax, including the date the property was purchased and when it was rented out. The cost of the land and the property was separately entered too.

So now, could this difference in the deduction amount cause an audit?

[spat001]

Another question: is MACRS 200% Double Declining method different from the regular MACRS?

Is so, then is it possible to make TurboTax use MACRS so that the tax forms contain MACRS rather than 20DB?

[JeffreyR77]

Addressing your last two questions, it is not correct to include the cost of land in basis for depreciation.  Conventional thought is that land doesn't lose its value only 'improvements' built upon it degrade over time.  You have taken a larger depreciation expense than you should have in years past.  You will have a larger depreciation recapture amount when you resell these assets because of this.

MACRS has 3 methods of depreciation:, 200DB, 150DB, and SL (Straight Line).  The use of MACRS by itself is often used when referring to the 200DB method as it is the most commonly used. 

[Beulahaline]

I have 2 items on my rental property depreciation schedule that the CPA who previously did our taxes used Straight Line depreciation. Turbo Tax wants to use 200DB meaning the assets are fully depreciated, which they are not due to SL depreciation being used in previous years. How can I get Turbo Tax to input SL depreciation?

[JamesG1]

You are able to report straight line depreciation in TurboTax Online Self-employed, by following these steps:

• Click Edit to the right of the asset at the screen Your Property Assets.
• At the screen Describe this asset, select Intangibles, Other property.  Continue.
• At the screen Tell us a little more, select Other asset type.  Continue.
• At the screen Asset Class, select the appropriate useful life from the dropdown menu.  Continue.
• At the screen MACRS Convention, select HY or MQ convention.  Continue.
• At the screen Depreciation Method, select Straight Line from the drop down menu.  Continue.

@Beulahaline