How To Claim Previously Unclaimed Depreciation
Looking for a great way to reduce your taxes?
In a previous article I discussed how new family child care providers can save hundreds of dollars on taxes. They can conduct an inventory of the household items they owned before their business began. These items can then be depreciated as an expense.
But, what if you've been in business for many years and never depreciated these household items?
It's not too late!
You can use IRS Form 3115 to depreciate all previously unclaimed depreciation on your current tax return. You can claim depreciation on this form for items you owned before you went into business as well as items purchased after you went into business. It doesn't matter how far back your business began.
To use this form, you must meet the following tests:
* You must be in business as a family child care provider
* You must own and have used the item in your business as of the beginning of the tax year you are filing
* You must file Form 3115 with your current year tax return
When you fill out this form you will calculate how much depreciation you were entitled to claim in previous tax years, but didn’t. Then you can claim all of this depreciation at once on your current tax return. Normally, you can amend your tax return back three years. But using this form allows you to go back ten, fifteen, twenty years or more.
Here’s how this works. Conduct an inventory of items you have not previously depreciated. Estimate their value at the time you first started using them in your business. Determine how much depreciation you were entitled to take and claim it on Form 3115.
Let’s say your business began on March 1st, eight years ago. At that time, you had a house full of items you started using in your business: washer, dryer, freezer, refrigerator, stove, microwave, tables, chairs, sofa, beds, television, fence, play equipment, lawn mower, and so on. You estimate that they were worth $10,000 on March 1st. Your Time-Space percentage was 40% every year since then.
You were entitled to depreciate $4,000 ($10,000 x 40%), each year for eight years, but you didn’t. Normally household items are depreciated over seven years. Since more than seven years have passed, you can claim the full $4,000 as a business expense on Form 3115 and claim it on your current tax return.
You don’t have to worry about not having receipts for these items. Take pictures and write everything down. The IRS will accept a reasonable estimate of their value.
Form 3115 can also be used to recapture depreciation on your home. See my previous article on why you should always be depreciating your home.
If you use a tax preparer, present your inventory and tell him/her that you want to take advantage of Form 3115.
Don’t lose this opportunity to claim depreciation deductions!
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.maxpixel.net/Home-Decorative-Desing-Furniture-Coach-Elegant-4687954
There is a chapter on how to fill out Form 3115 in my annual Family Child Care Tax Workbook and Organizer. This book also includes a chapter on how to calculate depreciation.
