Amend to take Sec 179

[Cat in OH]

Can I amend a 2004 return, 1040 w/ sch C, to include assets bought in 2004 but overlooked in tax prep? The total is under $5000 so I'd like to take a Sec 179 deduction instead of depreciating since the business income is decreasing every year (he's headed for retirement). The assets would have qualified for Sec 179 if the preparer had included them originally.

Thanks.

[lbbwest]

If you do that you will have to amend 2005 & 2006 because of the carryover depreciation.

[Cat in OH]

But if I take the full $5000 as Sec 179 it won't change any depreciation taken in 05 & 06?

[lbbwest]

But if I take the full $5000 as Sec 179 it won't change any depreciation taken in 05 & 06? If you haven't prepared 2005 or 2006 there is no problem, but if asset was depreciated in 2004 there would have carryover depreciation in 2005 and 2006; if the asset was simply left off the return you don't have carryover issues. I thought you were amending to Sec. 179 asset, not add asset (easy error on my part.)

[kcjenkins]

But if I take the full $5000 as Sec 179 it won't change any depreciation taken in 05 & 06?

That is correct, Cat, you just add the asset and §179 it, and you are good to go. While you can't go back and change depreciation methods that easily, you can for an omitted asset. Just be very clear in the 'explanation' area that it was omitted accidentally, and is now being added to the assets.

KC

[jainen]

>>While you can't go back and change depreciation methods that easily, you can for an omitted asset.<<

This sort of makes sense and it might sometimes succeed, but it doesn't actually follow instructions and isn't supported by the regulations. Since you have treated the equipment as a non-depreciable asset for three consecutive tax years, you have already established an accounting method for it. This cannot be changed without permission from the IRS but fortunately it falls within the automatic consent procedures of Form 3115.

[kcjenkins]

If you had chosen to treat it as a non-depreciable asset, that would be true. But if the asset were simply overlooked, with everyone assuming and intending that it be depreciated, but it being accidentally being omitted, that is an omission that can be corrected by amending, assuming it is within the time limit. If it is longer than three years, then, yes, you have to go with the 3115.

KC

[Bill (Wisconsin)]

Since you have treated the equipment as a non-depreciable asset for three consecutive tax years, you have already established an accounting method for it.

FWIW, I agree with Jainen -- except my understanding the rule is you've established a method of accounting if you did the same thing for 2 years or more. The regs don't say "unless you accidentally forgot".

Bill

[jainen]

>>"unless you accidentally forgot"<<

Thanks, Bill. Our industry is not immune from the cancer of non-accountability that infects so much of our society. Many people simply refuse to take responsibility for their own errors of commission or omission. I am distressed at how often good, solid tax professionals will try to justify a flimsy position based on "intent," as if they are not comfortable discussing specific tax planning techniques with their clients.

April 15th is supposed to be the big deadline in our business. You run your checktapes and the smell test, and sign under penalty of perjury that everything is true and complete. If later you get other information, you deal with it professionally according to the normal procedures. You don't say, "Oh, I didn't really mean that so it doesn't count!"