Checklist for IRS Form 4562 Depreciation – 2016

Before signing your tax forms and sending them to the IRS, use this checklist to spot potential errors on IRS Form 4562 Depreciation and Amortization.

Because of the new $2,500 rule that allows family child care providers to deduct in one year individual items costing less than $2,500, it is much less likely that you will have to depreciate items on IRS Form 4562.

If you do purchase items costing more than $200 and less than $2,500, report these expenses on Schedule C, not Form 4562. List them on line 27a of Schedule C and call them “Equipment” or “Furniture/Appliances” or use some other descriptor. Be sure to attach the proper statement to your tax return indicating that you are electing the $2,500 rule. See my article: “Where Do I Report Expenses Below $2,500 on My Tax Return?”

[]  Part I: Did you purchase any furniture, appliances or equipment that was used more than 50% in your business? If so, you can use the Section 179 rule in Part I and deduct the entire business portion in 2016. This rule can be used even if the cost of individual items is more than $2,500. However, if it cost less than $2,500 you are better off using the $2,500 rule and deducting it on Schedule C.

This is because if you use the Section 179 rule and later use the item less than 50% of the time in your business you will have to pay back some of the depreciation you claimed. However, if you use the $2,500 rule you won’t ever have to pay back any depreciation even if you go out of business in the next few years.

[]  Line 14: If you bought new furniture, appliances, equipment, fences, patio, driveway or home improvement in 2016, you are eligible for the 50% bonus depreciation rule. If you use this rule half of the depreciation deduction should appear on line 14 and the other half should be depreciated on line 19c (for furniture, appliances and equipment), 19e (for a fence, patio or driveway) or 19i (for a home improvement). However, if the item cost less than $2,500, use the $2,500 rule because you won’t have to depreciate it at all.

[]  Line 17: If you began depreciating items before 2016 and haven’t fully depreciated them yet, enter the depreciation deduction for these items for 2016 on line 17.

[] Line 19c: If 2016 was your first year in business, you are entitled to depreciate the value of all of your household items that you owned before you went into business and started using in your business. Such items can include: furniture, appliances, office equipment, bedding, kitchen dishware and utensils, house decorations, curtains, rugs, tables, chairs, and so on. These items should be claimed on line 19c. See my article, “How to Conduct a Household Inventory.” 

If you didn’t claim depreciation deductions for these items in earlier tax years, you may be able to use IRS Form 3115 Application for Change in Accounting Method to recapture previously unclaimed depreciation. See my article, “How to Claim Previously Unclaimed Depreciation.”

[]  Line 19i: If you made a home improvement in 2016, depreciate this expense over 39 years on line 19i. There is a new rule that expands the definition of what is a home improvement and what is a repair. For example, the replacement of a few windows in your home, or installing a wood or tile floor in one room is now considered a repair (that can be deducted in one year on Form 8829) rather than a home improvement. In addition, the new Safe Harbor for Small Taxpayers rule may allow you to deduct a home improvement in one year, if you meet certain qualifications.

[]  Lines 24a and b: Did you check “yes” next to the boxes on lines 24a and 24b? If not, it could trigger an audit.

[]  Lines 26 and 27: If you purchased a computer or other office equipment in 2016, enter the expense on either line 26 or 27, depending on whether you used it more than 50% in your business. If you purchased it new and used it more than 50% for your business, fill out line 25 to claim the 50% bonus depreciation deduction. Remember, if the computer or office equipment individually cost less than $2,500 you don’t have to depreciate it. Instead, deduct it directly on Schedule C.

[]  Lines 30-36: Fill out lines 30-36 if you used your vehicle in your business.

See also:

Checklist for IRS Schedule C: Profit or Loss From Business – 2016

“Checklist for IRS Form 8829 Expenses for Business Use of Your Home – 2016”

Tom Copeland –

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For more information, see my 2016 Family Child Care Tax Workbook and Organizer.

Categories: Depreciation and Home, Record Keeping & Taxes, Tax Return

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