Tax Q re: Depreciation of Property - form 4562

[vettechick99]

Oh I hope someone can explain this to me like I'm a three-year old.

I work for myself so I'm able to write off certain expenses. In '02 and '03 I bought a laptop and printer respectively and filled out a form 4562 (Depreciation & Ammortization). In '04 I bought a desktop and will once again fill out a 4562. But what about the other two previous items I bought...I didn't think the amount was deducted all at once and was depreciated over a useful lifetime? Is this right?

Thanks for your help!

 

[Bob Slydell]

It depends.

You could have taken a Secion 179 expense deduction and taken the entire cost of the equipment you purchase in 2002 and 2003 as expenses, in which case you can't take depreciation on those items for 2004.

If, however, you depreciated those items for 2002 and 2003, then yes, you can still take depreciation expense for them for 2004 (they're 5 year property, so there's still undepreciated value left).

 

[Galahad]

Oh I hope someone can explain this to me like I'm a three-year old.

I work for myself so I'm able to write off certain expenses. In '02 and '03 I bought a laptop and printer respectively and filled out a form 4562 (Depreciation & Ammortization). In '04 I bought a desktop and will once again fill out a 4562. But what about the other two previous items I bought...I didn't think the amount was deducted all at once and was depreciated over a useful lifetime? Is this right?

Thanks for your help!

If you started depreciating, I think you have to finish depreciating it at the rate you started. I don't think you can change the method of depreciation in the middle. So if you started to depreciate it over 3 years, you should "finish it". But if you buy something in 2004, like your desktop, you can make it a "179" property and take most of the cost as an "expense" all at once but then you can't cite it again on future returns. Do use Turbo tax? If so, you can plug the property in either way and see how it affects you. Turbo tax is good a keeping track of depreciation once you've started.

 

[vettechick99]

Thanks for the responses. In '02 the laptop was depreciated and in '03 only the printer was. I guess I failed to add the laptop into the form. So this year I need to continue depreciated both of those and add in my desktop.

So, in the end which is more beneficial financially speaking - depreciation or all at once?

 

[Bob Slydell]

So, in the end which is more beneficial financially speaking - depreciation or all at once?

It depends -- taking the expense all at once is better off for this year (assuming the total isn't over the maximum amount you can expense -- I forget what that is off-hand), but if you know you're going to be in business for a couple years, you might want to spread out that depreciation over time, so you benefit from it a little each year.

 

[vettechick99]

It depends -- taking the expense all at once is better off for this year (assuming the total isn't over the maximum amount you can expense -- I forget what that is off-hand), but if you know you're going to be in business for a couple years, you might want to spread out that depreciation over time, so you benefit from it a little each year.

Well, since my last post, I realized that Section 179 is the top portion of the 4562 form and that's what I've been using for my deductions. So I suppose I have been doing it all at once and not depreciating it. I'll continue doing this with this year's purchase. (Hmm, what shall I buy next year to write off? )

The maximum amount allowed this year is $102K...no way I'll ever meet that! It's a decent amount more than I make!

Thanks for helping me solve this!

 

[Galahad]