Keeping the Tax man happy

13 minute read time.

How to ensure the IRS is happy with your Form 4562 - Depreciation & Amortization

 

Year-end Tax time is here and when the time comes in the Sage Fixed Assets version 2015.1 Tax Update the Form 4562 will need to be reconciled to your assets.

 

The Tax update will not be release until the first week in February.

 

When it is time to run your Form 4562, the thing you will want to do is run depreciation on the <All Completed Assets> group to your Fiscal year end: Depreciation, Depreciate, select the <All Complete Assets> group, select the Tax Book, enter the Fiscal Year End for Calculate Depreciation Through, click Ok. Additionally, if the 168 Allowance or MACRS Convention switch was used, remember to check the box for Force Recalculation.

 

Then run the 4562 report. Go to: Reports, Tax Forms and Worksheets, select the 4562 Depreciation and Amortization report, select the <All Complete Assets> group, select the Tax Book, enter the first month of this fiscal year in Run report for fiscal year beginning, click Run Report.

 

Tying out the 4562:

 

For comparison, we will be using the Tax Expense Report which is the only report in the Sage Fixed Assets program designed to tie to the Form 4562. Go to: Reports, Standard Reports, select the Tax Expense report, select the <All Complete Assets> group, select the Tax Book, check the date is the fiscal year end, and click Run Report. A default Tax Expense report has a Total 4562 Expense column which should tie to the sum of the 4562 lines 22 and 44.

 

If the lines 22 and 44 tie to the Total 4562 expense column

 

The verifiable line on the 4562

 

Line 2 – Total Acquired values of Qualified Section 179 Assets

Line 14 – Current Year 168(k) Allowance

Line 16 – Current Year Non-MACRS depreciation

Line 17 – Current Year depreciation for prior year MACRS Assets

Line 19 – Current Year MACRS assets

Line 20 – Current Year ACRS assets

Line 25 – Current Year additions 168(k) allowance on vehicles

Line 26 – Current Year depreciation for vehicles

Line 42 – Current Year amortized Property

Line 43 – Current Year depreciation for prior year amortized Property

 

Total 4562 Expense:

 

Line 22 – Total Depreciation taken in the current year

Line 44 – Total Amortization taken in the current year

 

Form 4562, Part I Line 2: is the Total Acquired Value of all assets Placed in Service in the Current Fiscal year that qualifies for a Section 179 expense. In Sage Fixed Assets that means assets entered with Property type: P, A, Q or T Depreciation Method: MA, AA, AD, MR, SB, SF, MF, MT or MI and Tax Book Placed In Service Date is between the beginning and year of your year, or any asset which has had the Qualified §179 Property box checked.

 

How to enter Section 179 to an asset? Since Section 179 expense is a critical value of depreciation, it must be entered on an asset-by-asset basis.

 

In an asset’s detail view, under the Book information, enter the amount of Section 179 to be taken on the asset in the 179 Deduction field, press tab click save or press enter, this will open the § 179/Bonus Details dialog.

 

Completing the § 179/Bonus Details dialog:

 

If the asset is a Qualified Disaster Zone asset, select the appropriate Zone type:

 

There is currently one zone type. The availability of these zone types is based on the placed-in-service date of the asset. The table below lists the zone types and their availability: 

  • G - Gulf Opportunity Zone    08/28/2005 – 12/31/2008
  • K - Kansas Disaster Zone       05/05/2007 – 12/31/2008
  • E - Enterprise Zone                 01/01/2007 – 12/31/2013
  • D - Qualified Disaster Zone   01/01/2008 – 12/31/2012
  • X - No Zone Applies                Always available and Default

Use the following codes to specify the type of §179/Other Amount entered in the §179/Bonus Details dialog.

  • B - EPA Sulfur Control Requirements           12/31/2002 – N/A
  • C - Qualified Refineries:                                  08/09/2005 – 12/31/2013
  • D - Energy Efficient Commercial Buildings: 01/01/2006 – 12/31/2013
  • E - Advanced Mine Safety Equipment:         12/21/2006 – 12/31/2014
  • O - Other Asset Basis Reductions:                 N/A
  • N - Not Applicable:                                           Always available and Default

The sum of the §179 Amount and §179/Other Amount cannot exceed the Acquired Value of the asset.

 

The §179/Other Amount does not appear on the Form 4562. These deductions go onto U.S. Corporation Income Tax Return Form 1120 for C-corps or Form 1065 for S-corps.

 

Once the § 179/Bonus Details dialog is completed Click OK: Answer the questions with Yes and select the Placed in Service date, click Ok.

 

Since the Section 179 bonus is a reduction of the depreciable basis on an asset the depreciation needs to be reset to the Placed in Service date to allow the Sage Fixed Assets program to recalculate correctly.

 

Once the Section 179 has been entered on all assets for which it applies, and Depreciation has been calculated on those assets again for the fiscal year end, to get the amount on Line 2 of the 4562 should on the Tax Expense report: Create a Group with the criteria of Tax Book Placed In Service Date is between the beginning and year of your year and Tax Book Section 179 Qualified? is True.

 

Run the Tax Expense report on the above group and the Acquired Value column will tie the Line 2. Also Line 1 will be the Sec 179 Expense of the Tax Expense report.

 

Form 4562, Part II Line 14: is the Total amount of Current Year 168 Allowance taken on assets Placed in Service in the current year. In Sage Fixed Assets that means assets entered with Property type is not A, Q, S, or T (168 Allowance for these asset appear on Line 25) and Depreciation Method MA, SB, or AA

 

Create a Group with the criteria of Tax Book Placed In Service Date is between the beginning and year of your year, Property Type P and R and (There are other Property Types C, E, F and H which will need to be included if those Property types are in your company).

 

Run the Tax Expense report on the above group and the Sec 168 Expense column will tie to Line 14.

 

Form 4562, Part II Line 16: is the Total amount of Current Year depreciation taken on all non-MACRS Assets. In Sage Fixed Assets that means assets entered with Property type is not A, Q, S, or T (Again the Current Year to Date amounts will be on Line 25) and Depreciation Method is not MF, MA, MT MR, MI, AD, AA, or SB, SF (3year life only)

 

Create a Group with the criteria of Property Type P and R (There are other Property Types C, E, F and H which will need to be included if those Property types are in your company) and Depreciation Method is SL, SF (other than 3 year life assets), SH, or RV.

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 16.

 

Form 4562: Part III Line 17: is the Total amount of Current Year depreciation taken on all MACRS Assets Placed in Service in prior years. In Sage Fixed Assets that means assets entered with Property type is not A, Q, S, or T (Again these are on Line 25) and Depreciation Method is MF, MA, MT, MR, MI, AD, or AA.

 

Create a Group with the criteria of Tax Book Placed In Service Date is less than the first day of the current fiscal year, Depreciation Method is MF, MA, MT, MR, MI, AD, or AA and Property Type P and R (There are other Property Types C, E, F and H which will need to be included if those Property types are in your company)

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 17.

 

Form 4562: Part III Line 19: is the Total amount of Current Year depreciation taken on all MACRS Assets Placed in Service in current year. In Sage Fixed Assets that means assets entered with Property type is not A, Q, S, or T (Again on Line 25) and Depreciation Method is MF, MA, MT MR, MI, or SB, SF (3year life only)

 

Create a Group with the criteria of Tax Book Placed In Service Date is between the beginning and year of your year, Property Type P and R, and Depreciation Method is MF, MA, MT, MR or MI. Also, sort this group by Estimated Life with subtotals.

 

Run the Tax Expense report on the above group and the Estimated Life Current YTD Expense subtotals will tie to the multiple lines in Line 19.

 

Form 4562: Part III Line 20: is the Total amount of Current Year depreciation taken on all ADS Assets Placed in Service in the current year. In Sage Fixed Assets that means assets entered with Property type is not A, Q, S, or T (Again on Line 25) and Depreciation Method is AD or AA

 

Create a Group with the criteria of Tax Book Placed In Service Date is between the beginning and year of your year, Property Type P and R (There are other Property Types C, E, F and H which will need to be included if those Property types are in your company), and Depreciation Method is AD, or AA. Also, sort this group by ADS life with subtotals.

 

Run the Tax Expense report on the above group and the ADS Life Current YTD Expense subtotals for Assets with a 12 and 40 year ADS Life will tie to Line 20b and 20c. All other ADS lives will be included in Line 20a.

 

This is the only report where the ADS life will affect where an asset will show up on a report.

 

Form 4562: Part V Line 25: is the total amount of Current Year 168 Allowance taken on Assets Placed in Service in the current year.

 

In Sage Fixed Assets that means assets entered with: Property Type is A, Q, S, or T

 

Create a Group with the criteria of Property Type is A, Q, S, or T. (You do not need any other criteria since it is the nature of the 168 to be taken in the first month of the asset’s life.)

 

Run the Tax Expense report on the above group and the Sec 168 Expense column will tie to Line 25.

 

Form 4562: Part V Line 26: is the Total amount of Current Year depreciation taken Listed Property.

 

In Sage Fixed Assets that means assets entered with: Property Type is A, Q, S, or T

 

Create a Group with the criteria of Property Type is A, Q, S, or T.

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 26.

 

Form 4562: Part VI Line 42: is the Total amount of Current Year Amortization taken on Assets Placed in Service in the current year. In Sage Fixed Assets that means assets entered with Property Type is Z, Placed in Service in the current year

 

Create a Group with the criteria of Property Type is Z and Tax Book Placed In Service Date is between the beginning and ending dates of your year.

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 42

 

Form 4562: Part VI Line 43: is the Total amount of Current Year Amortization taken on Assets Placed in Service in prior years. In Sage Fixed Assets that means assets entered with: Property Type is Z, and Placed in Service in prior years

 

Create a Group with the criteria of Property Type is Z and Tax Book Placed In Service Date is less than the beginning date of your year.

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 43

 

Form 4562: Part VI Line 44: is the Sum of lines 42 and 43 or the Current year to date of all assets with Property Type is Z.

 

Create a Group with the criteria of Property Type is Z.

 

Run the Tax Expense report on the above group and the Current YTD Expense column will tie to Line 44.

 

Form 4562: Total 4562 Expense Calculation:

 

Run Depreciation on the <All Complete Assets> group and then the Form 4562 on the <All Complete Assets> group, and when running the Tax Expense report on the <All Complete Assets> group the Total 4562 Expense Column will tie to:

 

Line 22 - Contains the total amount of Current Year to date Depreciation, Section 168 Allowance and Section 179 Expense.

Line 44 - Contains the total amount of Current Year to date Amortization.