2010-1
6

Form 4626 AMT: How and When to fill out the Alternative Minimum Tax form

Category: Tax Forms | Tags: , | 1 Comment

Businesses are required to use IRS Form 4626 to determine the Alternative Minimum Tax (AMT) under section 55 that they are held liable for, unless they qualify as exempt.  This post will address the purposes of form 4626, as well as the instructions for the form.  If you are new to filing, and wonder what AMT is altogether, you are in the right place.

Form 4626

(Click Image for actual PDF form)

Corporate Alternative Minimum Taxes are calculated in addition to regular taxes.  Companies must then compare the two, and are obligated to pay the higher amount.  The initial reasoning behind the mandated AMT was to prevent wealthy corporations from using too many tax loopholes that could be found in the regular tax system.  Created under the Tax Reform Act of 1986, the AMT has been considered by many to be irrelevant, and a burden to taxpayers.  Still, it serves as a great source of income to the government, and many feel that it would be too costly to repeal it.  So, in the meantime, companies (and many individuals for that matter) are forced to pay it.  Thus, below, we have provided the information you need to know in determining your company’s AMT payments, starting with the IRS stated qualifications for the filing the form.

Generally, companies must file Form 4626 if either of the following apply.

  • The corporation’s taxable income or (loss) before the net operating loss (NOL) deduction plus its adjustments and preferences total more than $40,000 or, if smaller, its allowable exemption amount.
  • The corporation claims any general business credit, any qualified electric vehicle credit, or the credit for prior year minimum tax.

IMPORTANT NOTE:  If the corporation is a “small corporation” exempt from the AMT (as is explained in detail HERE on  the actual form), do not file Form 4626.

Despite in many ways being outdated, form 4626 is something that many businesses still must file, and all businesses should at least be aware of.  If  you need any help in understanding the form, or if you are uncertain as to whether or not your company is one that must fill it out, feel free to contact us below or on the questions page.  Also, how do you feel about the AMT in general?  Do you hate it and think it should be repealed or amended?  Or do you think it still serves a purpose in thwarting a usage of too many tax loopholes?  Let us know any ideas or issues you have.

2009-12
23

Qualified Reuse and Recycling Property

Category: Bonus Depreciation | Tags: , , | No Comments

Qualified Reuse and Recycling Property will be the discussion point for this post on bonus depreciation.  In just over a week, the 2010 New Year will be here and it will be time for us all to make our new years resolutions.  For many people, that may be exercising more, making the world a better place, spending more time at home, and saving money.  Interestingly, many businesses will also have some similar New Years resolutions including being more profitable, being more environmentally conservative, and reducing expenses.  With that in mind, why not take a look at something that can help your business with all three of those resolutions?

source: cityofsouthfield.com

source: cityofsouthfield.com

Businesses are allowed to take a special allowance on depreciation for qualified reuse and recycling property.  If you are asking yourself what this means, you are in the right place and will find the information below.  Also below, you will find the guidelines for taking advantage of that special bonus depreciation.

Qualified Reuse and Recycling Property:

1.      Is allowed a 50% Bonus Depreciation that may be claimed on the adjusted basis of Qualified Reuse and Recycling Property acquired and placed in service after 8/31/08.  The original use of the property must begin with the taxpayer after 8/31/08 and the property must be new.

2.      Is Defined as:

  • A) Machinery and equipment (not building, real estate, rolling stock or equipment to transport reuse and recyclable materials) that is used exclusively to collect, distribute or recycle qualified reuse and recyclable materials.  Machinery and equipment includes the software necessary to operate the equipment.
  • B)  Qualified reuse and recyclable materials are: scrap plastic, glass, textiles, rubber, packaging, metal, fiber and electronic scrap.
  • C)  The term “recycle” and “recycling” means the process by which worn or superfluous materials are processed into materials for use in manufacturing consumer and commercial products, including packaging.
  • D)  “Electronic scrap” which includes cathode ray tubes, flat panel screens or similar video display devices with screen sizes greater than 4 inches diagonally and central processing units.

3.      Must have original use with taxpayer beginning after 8/31/31.  Property must be acquired after 8/31/08.  If a written contract to purchase, it must be entered into after 8/31/08

4.      Purchased is as defined in Code Sec. 179(d)(2).

5.      Qualified reuse and recycling property must have a useful life of at least 5 years.  This is not the assigned recovery period for this asset.

As you can see, committing to conducting business in a more environmentally safe manner, and finding ways to also save money through the allowable bonus depreciation can be a great new years resolution.  Should you have any questions on this, please do not hesitate to ask us below or on the questions page.  We wish you and your business the best in the upcoming New Year, and hope this information can be of help.

2009-12
16

Form 4797: How and when to fill it out

Category: Reporting, Tax Forms | Tags: , , | 1 Comment

For those businesses that have sold any business property within the last year, the appropriate IRS form needed for filling would be IRS form 4797.  Several reasons to use this form are stated below as they appear on the IRS website.  Also, it is important to note that for 2009 filing, there are some new rules concerning sales of homes used for business purposes.  Below are the IRS stated reasons for using this form to report:

  1. The sale or exchange of:
    1. Property used in your trade or business;
    2. Depreciable and amortizable property;
    3. Oil, gas, geothermal, or other mineral property
    4. Section 126 Property
  2. The involuntary conversion (from other than casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit.
  3. The disposition of capital assets not reported on schedule D.
  4. The gain or loss (including any related recapture) for partners and S corporations shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations.
  5. The computation of recapture amounts under section 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less

form-4797-sale-of-business-property1

Many people find confusion with whether or not use of this form is appropriate for their needs, and if it is, how exactly it should be filled out due to the many rules that apply.  To see these rules and the complete set of instructions offered by the IRS, click this link.  Once you decide you are comfortable and understanding, this is the actual form that you will be filling out.  If you take a look at it, you will notice that it is divided into four sections.  If you are like many who when they attempt to do this and find a need for more help, we would be happy to try to assist any problems or questions you leave us in the comments section or question page.

2009-12
9

2009 Bonus Depreciation Deadlines

Category: Amended, Bonus Depreciation | Tags: , | No Comments

As the year of 2009 comes to an end, we would like to remind you that so too do many opportunities to take advantage of extended bonus depreciation allowances. Recall that under the 2008 Economic Stimulus Act, allowable bonus depreciation was increased to the amount of 50%. This allowance was again extended through the end of this year (2009) by the passage of the American Recovery and Reinvestment Act (ARRA). In case you have yet to take advantage of this but would still like to, below is the information you need to know from the ARRA of 2009.  Still, the ARRA of 2009 was not the only notable legislation related to bonus depreciation passed this year.  So, if you are asking what other amendments or new stipulations were passed, that you still have time to take advantage of, we have them listed right here below with a link to more information.

Bonus Depreciation: source-modernmachinerycompany.com

Bonus Depreciation: source-modernmachinerycompany.com

American Recovery and Reinvestment Act of 2009

1  Extends until 12/31/2009, the 50% Bonus Depreciation allowed under the 2008 Economic Stimulus Act

2. The Placed In Service data is extended to 12/31/2010 for property with a 10 year or longer recovery period, for transportation property (personal, used to transport people or goods) and for certain aircraft and,

  • Is subject to Uniform Capitalization Rules
  • Has a production period exceeding 1 year and a cost exceeding $1 million dollars

3. The Luxury Auto cap on new vehicles placed in service in 2009. The regular first year cap of $2,960 for automobiles is raised to $10,960, if bonus depreciation is elected. $11,160 for light trucks and vans.

4. For a Section 179 Expense Deduction there is a maximum deduction amount of $250,000 and a maximum Investment Limit of $800,000.

5. Refundable AMT and R&D credits in lieu of Bonus Depreciation


Emergency Stabilization Act of 2008

Qualified Disaster Assistance Property (Provision of the Emergency Economic Stabilization Act of 2008)

The Recovery Rebates and Economic Stimulus for the American People Act of 2008

Kansas Disaster  Area (Qualified Recovery Assistance Property) - Placed in service date of 12/31/2009 Only for Section 1250 Property

The time to take advantage of the increased allowable bonus depreciation is now.   So, if you have any questions, or would like more information on bonus depreciation, please feel free to ask us in the comments of questions section. Also, check out this post on bonus depreciation in Wichita to see how it is designed to help industries rebound. We certainly hope it does.

2009-12
4

IRS Form 4562: Information and Instructions

Category: Reporting, Tax Forms | Tags: , , | 1 Comment

IRS Tax Form 4562 will begin a new series of posts covering the various tax forms and publications offered by the IRS when filing for depreciation and amortization expenses.  Form 4562 is used by a business to report the deductible expense related to any business property purchased during the given tax year.  Business property includes tangible assets that are either personal property (machinery, computers) or real property (buildings, building improvements) which can be depreciated.  Intangible property (computer software, patents) can be amortized over a period of time.  Below is a screen shot of the 2009 Form 4562.  Clicking the image will bring up the entire pdf file which you can fill out.

irs-form-4652

To find filing instructions for the form, simply click on this link which will direct you to the IRS website.

Once there, you will find amongst other things, information pertaining to the following:

1)  The Purpose of the form

  • Claim your deduction for depreciation and amortization,
  • Make the election under section 179 to expense certain property, and
  • Provide information on the business/investment use of automobiles and other listed property.

2)  Special Depreciation Allowance including:

3)  Recovery Periods and Class Lives

4)  Mid-Month, Mid-Quarter, and Half-Year Conventions

We  know how much everyone looks forward to completing this form.  So, if we can make your life any easier with this process, or help with any other IRS Forms, please ask us below, or on the questions page.  Furthermore, should you have any questions about filling out the forms, or which forms are applicable, feel free to ask as well.

2009-11
17

Depreciation Rounding Errors: It’s Time to Solve Them

Category: Calculations, Regulations, Rounding Errors | Tags: , , | No Comments

Rounding errors have traditionally been an issue found when using depreciation software.  The problem comes from the basic division of asset cost over a number of periods.  For example, take a fixed asset with a cost of $1.00 spread over 3 months.  This would result in $.33 per period, but when multiplied by 3 periods would calculate a total of $.99, not the $1.00 you would expect.

The traditional solution has been to round numbers for presentation, but then add the actual numbers to ensure accurate totals.  So the calculation would result in.333333333 for each period, but only display .33 in reports.  Then when a report is run for a selected quarter (i.e. 3 periods), the resulting total would be 1.00.  This leads to some confusion as illustrated in Table A-1 below:

Bassets “Precision Rounding” solves this problem by evenly distributing the total cost over x-1 periods, where x is the total number of periods.  Each calculation is rounded up or down to the nearest penny.  The cumulative total of the rounded values will be accounted for in the last period.  The new solution is shown in the right column of table A-1:

(Click Image for a Clearer View)

(Click Image for a Clearer View)

Traditional solutions only store the calculated results for the current period.  Whenever a report is run, a calculation is executed to determine the depreciation numbers for the selected period(s).  Other systems will force a “hard close” to ensure the calculated totals are stored and do not change.

Bassets eDepreciation further attacks this problem in a new way.  Each individual calculated period value is stored to a detailed database record.  Then, when a report is run, a calculation is not necessary.  The individual periods are simply added up to generate a cumulative report.  This ensures absolute accuracy and consistency since the math is all standard addition, not division.  To further illustrate how this is applied to depreciation software, here is a more real world example.  Consider an asset with a cost of $1,000 that needs to be depreciated over 3 years (3 years × 12 months = 36 periods).

In most versions of depreciation software, the cost of $1,000 divided by 36 periods, yields $27.77778 per period which rounds to $27.78.  This creates several rounding problems:

1.The annual totals appear incorrect (27.78 ×12 is not 333.33)
2.The cumulative total of 1,000 appears to be the total of 333.33 × 3 years
3.The sum of the 36 period (27.78 × 36 ≠1,000 as shown.  Rather, 27.78 × 36 =1,000.08)

eDepreciation solves this problem.  In this screen shot, you can see a comparison of of an older system (left) to the new eDepreciation software (right).  By comparing the two, you will notice the rounding problem is solved by eDepreciation in that the rounded numbers are in fact the actual calculations.  Any rounding differences are then accounted for in the last period of the assets life.  So, 27.78 * 35 periods equals 972.30 and the balance (27.70) is the amount for the last period.

This allows the first 2 years to correctly total 333.36.  Any calculations run for a range of periods (Quarter, Annual, etc.) will always total the sum of the individual periods.

This “Precision Rounding” eliminates the need for a monthly hard close and ensures that all reports totals will match to the penny.  The actual difference in this calculation over the entire life of an asset will never be more than ½ penny for each period.  So, the worst case scenario for a 10 year asset (120 periods) would be 60 cents.  (120 periods × $.005 = $.60)

Remember, while rounding errors that are only pennies per period may not seem to be a big deal, they can in fact have a huge impact.  Consider the implications when having such errors on thousands of assets.  The wrong information can affect how a company makes decisions.  Thus, why not take advantage of the opportunity to solve this issue?

For more information on how to overcome rounding issues when doing your calculations, please feel free to contact us via the comments or questions page.

2009-11
17

Understanding Depreciation Transfer Reports

Category: Reporting | Tags: , , | No Comments

Depreciation Transfer Reports will be the type of report described in our fifth post on depreciation reporting.  This report shows all of the transfer activity for a selected period or periods.  It displays both sides (transferred out and transferred in) of the asset movement.  The image at the bottom of the page shows a snap-shot of part of a depreciation transfer report.  However, listed immediately below are all of the columns that this report should include:

  1. Transfer Date - date of transfer
  2. Asset From - asset number of the original asset
  3. Asset To - asset number of the new asset
  4. Transfer Code - type of transfer
  5. Transferred Out -
    1. Cost - purchase price of the asset
    2. Prior - amount of depreciation calculated from the service date through the previous accounting period
    3. Current - amount of depreciation in the current accounting period or periods
  6. Transferred In
    1. Cost - purchase price of the asset
    2. Prior - amount of depreciation calculated from the service date through the previous accounting period
    3. Current - amount of depreciation in the current accounting period or periods

The tricky thing about transfers is properly allocating the correct depreciation amount to each side of the transfer.  When a transfer occurs in the middle of a year there is depreciation for both sides of the transfer in that year.  Any prior years would show depreciation in the original location while subsequent years would show depreciation in the new location.depreciation-transfer-reports

This can sometimes cause confusion when running historical reports.  Make sure that your fixed asset system properly handles both sides of a transfer in all historical, current and future reports.  If you would like any questions answered on this type of reporting, we would be happy to try and assist you.  Please feel free to ask us anything below in the comments or on the questions page.

2009-11
4

Asset Disposition – Gain / Loss Report

Category: Reporting | Tags: , , | No Comments

Continuing from our asset acquisition reporting post, this post will address asset disposition reporting. This report displays all assets disposed between the selected period begin and end dates.  Below, you will find the columns that should be included in such a report.  Also, take a look at the sample report we have included to see what this report should look like.  (Click it for a larger view)

  1. Asset Number - unique asset identifier
  2. Description
  3. General Ledger Code – associated G/L code for this disposal
  4. Department Code – associated department
  5. Acquisition Date  – the date when the asset was acquired
  6. Cost – purchase price of the asset
  7. Disposal Date – the date the asset was disposed
  8. Disposal Method – method of disposal (i.e. Sale, Retirement, etc.)
  9. Proceeds of Sale – any money received for the disposal
  10. Total Depreciation - sum of prior and current depreciation amounts
  11. Calculated Gain/Loss – the difference between the cost minus any proceeds and total depreciation

Asset Disposition Report

Some disposals such as abandonment and destruction do not include any proceeds.  The company simply gets rid of the asset at the end of its’ useful life.  Other disposals such as a sale and exchange can result in proceeds when removing the asset.  In either case, the calculated gain or loss will show the net effect of the disposals.

This report is typically run with filtering to select a subset of disposals.  It can then be used to review all sales or other types of disposals for a specific period or periods for a given entity.  An example of this would be, all the retirements this year for the New York office.  For more information regarding this type of report, or should you have any questions, feel free to ask below or on our questions page.

2009-11
3

Asset Acquisition Report

Category: Regulations, Reporting | Tags: , , | No Comments

Asset Acquisition Reporting will be the topic of our fourth depreciation reporting post.
This report displays all of the assets acquired between the selected period begin and end dates.  The selected periods can be:

  • A single month
  • 3 months or a quarter
  • 6 months or half the year
  • 12 months or the entire year
  • Any number of months to show year-to-date

When constructing an asset acquisition report, the columns of the report should include:

  1. Asset Number - unique asset identifier
  2. Description
  3. General Ledger Code – associated G/L code for this acquisition
  4. Acquisition Date  – the date when the asset was acquired
  5. Cost – purchase price of the asset

Here you can view a sample asset acquisition report to see what one generally looks like (click the image for a larger, clearer view):

Fixed Asset Reporting - Asset Acquisition Report

This report is typically run with filtering to select a subset of acquisitions.  It can then be used to review all purchases for a specific period or periods for a given entity.  An example would be, all the purchases in the first quarter for the sales department.

For more information on depreciation reporting, take a look at a few other posts addressing the subject.  Also, if there is anything that you would like more information on, or should you have any questions, please ask us below or on the questions page.

2009-10
28

Bonus Depreciation In Wichita, Kansas: Help for the Aviation Sector

Category: Amended, Bonus Depreciation | Tags: , , | No Comments

Last Thursday, Congressman Tiahrt proposed a bill aimed at using bonus depreciation to help stimulate a suffering economy in Kansas.  The bill would further extend for two years, the increased allowable bonus depreciation amounts under the American Recovery and Reinvestment Act of 2009. This would be aimed at helping an ailing economy and aviation industry in the state.

Much of Wichita’s economic stability had been tied to job creation and sales in the growing aviation sector.  Less than two years ago, there were over 9,000 unfilled jobs in demand and sales were at an all-time high.   Recently however, sales have plummeted, and at least 13,000 jobs have been slashed in the last year alone.  Some people fear that the trend may be so negative, that Wichita may begin to resemble the situation Detroit is in.
wichita-aviation

Most however, argue that the circumstance of Wichita is not that of  Detroit’s and feel there is hope for a rebound.  Still, both Tiahrt and the General Aviation Manufacturers Association strongly urge proactive steps, and feel that extended bonus depreciation would help.  Also, under Tiahrt’s bill titled the General Aviation Jobs Act, the recovery period for new non-commercial aircraft purchased would be reduced to 3 years from 5, allowing for a more accelerated recovery of taxes.  This would in turn alleviate some of the financial burden of making such a purchase.  Hopes are that as a result, more planes will be ordered and purchased leading to job creation.

For more information regarding the general concepts of bonus depreciation, feel free to check out our other bonus depreciation posts here.  Also, we would like to hear your input on the subject.  Do you think that extended bonus depreciation would serve as a legitimate incentive?  Have prior increases in bonus depreciation helped you business in the past?  Are there any other forms of tax legislation that you feel would help the economy?  Let us know, in the comments.  Also, if there are any questions you have, feel free to ask below or on the questions page.

photo credit:  kansassampler.org