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Message
New Accountant Needs Help: § 179 Depreciation Deduction
Posted on 2/14/14 at 4:07 pm
Posted on 2/14/14 at 4:07 pm
I just started at a CPA firm a couple of months ago and have only been doing tax returns for two weeks now. Needless to say, I’ve realized that I learned nothing in school and have utterly no clue what I’m doing. My boss is really beginning to lose his patience with me and I’m worried I’ll be fired soon if I don’t get it together in a hurry.
On Tuesday, he told me to do the tax return for one of our clients, a construction company. The only new asset the company acquired this year was a 2014 F350 on November 29, 2013. He told me that before I do the tax return, I’m to make a depreciation schedule for the truck and then an adjusting journal entry in QuickBooks to reflect it. I have never heard of Section 179 until now and have been trying to teach it to myself. I just looked at all the MACRS charts to try and figure this thing out and now I’m more confused than ever! What is the formula I should use? What should my journal entry look like? What should my depreciation schedule look like? Someone please explain this to me like I'm 3.
Here is what I think I’ve determined thus far:
Since the truck is considered a heavy vehicle (over 6,000 lbs.), I can only take a Section 179 deduction of $25,000? Since it is a vehicle, it has a depreciable life of 5 years? Since it was purchased on November 29th, I should use mid-quarter convention on the 5 Year MACRS chart of 5%?
Is any of this sounding right? If so, now what do I do with all of this information to make the depreciation schedule and adjusting journal entry. We use Pro System for tax returns, so I went on the Form 4562 and typed in the date, the truck was purchased, that it had a life of 5 years, and that the guy paid $38,501 for it, then the system spit out all these #’s on the depreciation schedule and I have no clue how they were arrived at. (See attached image where hi-lighted. Ignore red marks.)
When I went to my boss and showed him the depreciation schedule and my adjusting journal entry and what my balance sheet looked like, he became extremely annoyed and told me to pack up my stuff and go home and not to think about coming back through his office doors until I fully understand depreciation. Well, I’ve been out of the office for two days now, due to the office being closed for a snow storm. I’m almost certain the office will be open tomorrow and I STILL have no clue what I’m doing. I think he may fire me tomorrow if I don’t know how to fix this. HELP!!!!
On Tuesday, he told me to do the tax return for one of our clients, a construction company. The only new asset the company acquired this year was a 2014 F350 on November 29, 2013. He told me that before I do the tax return, I’m to make a depreciation schedule for the truck and then an adjusting journal entry in QuickBooks to reflect it. I have never heard of Section 179 until now and have been trying to teach it to myself. I just looked at all the MACRS charts to try and figure this thing out and now I’m more confused than ever! What is the formula I should use? What should my journal entry look like? What should my depreciation schedule look like? Someone please explain this to me like I'm 3.
Here is what I think I’ve determined thus far:
Since the truck is considered a heavy vehicle (over 6,000 lbs.), I can only take a Section 179 deduction of $25,000? Since it is a vehicle, it has a depreciable life of 5 years? Since it was purchased on November 29th, I should use mid-quarter convention on the 5 Year MACRS chart of 5%?
Is any of this sounding right? If so, now what do I do with all of this information to make the depreciation schedule and adjusting journal entry. We use Pro System for tax returns, so I went on the Form 4562 and typed in the date, the truck was purchased, that it had a life of 5 years, and that the guy paid $38,501 for it, then the system spit out all these #’s on the depreciation schedule and I have no clue how they were arrived at. (See attached image where hi-lighted. Ignore red marks.)
When I went to my boss and showed him the depreciation schedule and my adjusting journal entry and what my balance sheet looked like, he became extremely annoyed and told me to pack up my stuff and go home and not to think about coming back through his office doors until I fully understand depreciation. Well, I’ve been out of the office for two days now, due to the office being closed for a snow storm. I’m almost certain the office will be open tomorrow and I STILL have no clue what I’m doing. I think he may fire me tomorrow if I don’t know how to fix this. HELP!!!!
This post was edited on 2/14/14 at 4:09 pm
9
Posted on 2/14/14 at 4:21 pm to Jorts R Us
I wish
Posted on 2/14/14 at 4:35 pm to Type A
I wish I could help. I know how you feel though.
Have you literally been in the industry for only a couple months? I'm not a savvy accountant but that seems unrealistic that your boss is getting THAT upset over someone who has zero experience. I would think that there would be some leeway considering your newness.
Have you literally been in the industry for only a couple months? I'm not a savvy accountant but that seems unrealistic that your boss is getting THAT upset over someone who has zero experience. I would think that there would be some leeway considering your newness.
Posted on 2/14/14 at 4:45 pm to dcrews
Thank you. That is comforting to hear. It has been really tough with an unsupportive boss who is unwilling to train me.
Posted on 2/14/14 at 4:52 pm to Type A
quote:
an unsupportive boss who is unwilling to train me.
I'm in my second "real" job. I'm starting to learn that most companies do not train employees as thoroughly as they should.
It's sink or swim out there it seems. All you can do is give all you got and if at the end of the day if that isn't good enough for them, then it is what it is.
I know that doesn't answer your problem
but I've been where you are and it gets better eventually.
Posted on 2/14/14 at 4:58 pm to Type A
You need to find another job
I worked for a guy like that for about a week before i walked out of the office and told him to frick off
I worked for a guy like that for about a week before i walked out of the office and told him to frick off
Posted on 2/14/14 at 5:03 pm to Type A
I'm guessing this is a really small firm if there is no one else you can ask for guidance from in the office?
Posted on 2/14/14 at 5:05 pm to Type A
quote:
My boss is really beginning to lose his patience with me and I’m worried I’ll be fired soon if I don’t get it together in a hurry.
Been there. Got the t-shirt.
Posted on 2/14/14 at 5:16 pm to tigers102886
Yes, very small firm. Only three accountants. Four of us in the office if you include the receptionist.
Posted on 2/14/14 at 6:55 pm to Type A
Got desperate and went to the OT? Yikes...
Sorry, I'm of absolutely no help. Tax was my worst accounting course in college.
Sorry, I'm of absolutely no help. Tax was my worst accounting course in college.
Posted on 2/14/14 at 8:35 pm to dcrews
Truth be known, your boss is probably not as busy as he thought he would be. Sure, he acts like he is covered up over his head. But he is really not. Last year, he probably had a part time intern, or, if he had someone full time he fired that person after tax season. The same is going to happen to you...you are going to get let go one way or the other.
Do this - frick his client asset files up and quit.
Do this - frick his client asset files up and quit.
Posted on 2/14/14 at 8:49 pm to Type A
There is so much missing information that all you are going to get are suggestions rather than a definitive answer. What is your goal? Do you want to maximize deductions for your client? If so, then you can possibly claim Section 179 expense for the entire cost of the truck. As long as the truck weighs more than 6,000 lbs and the interior length of the bed is at least 6 ft you are not limited to $25,000 of Section 179 expense.
Your boss is being a dick by asking you to prepare a depreciation schedule. That is what the Form 4562 features of your tax prep software are for. Most accountants enter the depreciation information and let the software do the calculations. Then they determine the adjusting journal entries to account for any book to tax differences. It's a matter of efficiency.
You appear to have everything entered properly except for the Sec 179 limit. You want to let the software know that you are eligible for the 50% bonus depreciation and that your method would be MACRS 5yr with the mid-quarter convention applying. This will allow the software to determine any Sec. 179 recapture should the truck be disposed of within its recovery period.
Your boss is being a dick by asking you to prepare a depreciation schedule. That is what the Form 4562 features of your tax prep software are for. Most accountants enter the depreciation information and let the software do the calculations. Then they determine the adjusting journal entries to account for any book to tax differences. It's a matter of efficiency.
You appear to have everything entered properly except for the Sec 179 limit. You want to let the software know that you are eligible for the 50% bonus depreciation and that your method would be MACRS 5yr with the mid-quarter convention applying. This will allow the software to determine any Sec. 179 recapture should the truck be disposed of within its recovery period.
Posted on 2/14/14 at 8:58 pm to Type A
Wow, so you are a female and your boss is treating you like that. I didn't see thread on OT. 
Posted on 2/14/14 at 10:12 pm to RunningBlake
OK. Do you not understand the concept of depreciation in general, or are you just not understanding how tax depreciation works in real life? Did you take a tax class in school? I would have thought Sec 179 would have been covered.
I tell our newbies all the time that tax requires you to think of the basic rule, then think of all the exceptions and additional provisions that effect the basic rule. The following is a oversimplied explanation of tax depreciation. Know this and you can at least sound half intelligent to your prickish boss.
MACRS is the basic rule. Number of years, declining balance, etc.
Bonus depreciation currently allows you to take a 50 percent off-the-top depreciation deduction in the first year. You then apply MACRS to the remaining 50 percent. Bonus is available for certain class lives, and the asset has to be new, not used. If you don't want bonus to apply, you have to elect out of it. So basically, you end up with a pretty large deduction in the first year, and significantly smaller deductions in the later years. You can use bonus regardless of your net income situation.
Section 179 is technically an expensing provision, but it is realistically a form of accelerated depreciation. The asset can be new or used, and it has to fit certain asset classes and lives. There are three limitations. One, it generally can't be used for assets in a rental situation. Two, there are limits to the amount of asset purchases you can use for Section 179, and if you buy too many assets in value, you can't use it at all (you probably will never see this with the busineses that would use a CPA firm of that size). The third one is big: Section 179 can't create a taxable loss. Any Section 179 that would create a taxable loss is carried over to the next year, where hopefully you have enough income to take it.
Now, there are ways to layer in the provisions of Section 179, Bonus, and MACRS, but that is beyond the scope of this discussion. This gives you the basics, now, you need to figure out the types of assets that each provision can apply to, and the best ways to use each one. The truck you are working on, can use this idea. If they had enough income, they could take 25K of Sec 179 on the truck, then bonus on the balance, then MACRS on the rest of the balance.
The journal entry would be to debit depreciation expense and credit accumulated depreciation.
I tell our newbies all the time that tax requires you to think of the basic rule, then think of all the exceptions and additional provisions that effect the basic rule. The following is a oversimplied explanation of tax depreciation. Know this and you can at least sound half intelligent to your prickish boss.
MACRS is the basic rule. Number of years, declining balance, etc.
Bonus depreciation currently allows you to take a 50 percent off-the-top depreciation deduction in the first year. You then apply MACRS to the remaining 50 percent. Bonus is available for certain class lives, and the asset has to be new, not used. If you don't want bonus to apply, you have to elect out of it. So basically, you end up with a pretty large deduction in the first year, and significantly smaller deductions in the later years. You can use bonus regardless of your net income situation.
Section 179 is technically an expensing provision, but it is realistically a form of accelerated depreciation. The asset can be new or used, and it has to fit certain asset classes and lives. There are three limitations. One, it generally can't be used for assets in a rental situation. Two, there are limits to the amount of asset purchases you can use for Section 179, and if you buy too many assets in value, you can't use it at all (you probably will never see this with the busineses that would use a CPA firm of that size). The third one is big: Section 179 can't create a taxable loss. Any Section 179 that would create a taxable loss is carried over to the next year, where hopefully you have enough income to take it.
Now, there are ways to layer in the provisions of Section 179, Bonus, and MACRS, but that is beyond the scope of this discussion. This gives you the basics, now, you need to figure out the types of assets that each provision can apply to, and the best ways to use each one. The truck you are working on, can use this idea. If they had enough income, they could take 25K of Sec 179 on the truck, then bonus on the balance, then MACRS on the rest of the balance.
The journal entry would be to debit depreciation expense and credit accumulated depreciation.
Posted on 2/14/14 at 10:20 pm to LSUFanHouston
Or they could 179 the entire cost of the truck. It meets one of those exceptions because it has a 6 ft bed.
Posted on 2/14/14 at 10:43 pm to simonizer
Simonizer - I didn't see that in the original post. Indeed, they could 179 the whole thing if the bed is 6 ft.
This post was edited on 2/14/14 at 10:45 pm
Posted on 2/15/14 at 12:05 am to Type A
I posted this in the OT thread, but I believe it went unnoticed. Section 179 is an IRS rule and not a GAAP rule. Therefore, you CAN NOT book that whole amount in your journal entry into QB. You need to run a regular 5-yr MACRS calculation (or whatever the client's method of depreciation is) and book that amount as depreciation expense and accumulated depreciation. This will result in a temporary difference until the asset is fully depreciated.
Impress your boss and mention that this is covered in FIN 48. Them tell him to DIAF for being a dick.
And get out of public accounting before you lose your sanity and your eyesight. I and the voices in my head know from experience. Trust us.
Impress your boss and mention that this is covered in FIN 48. Them tell him to DIAF for being a dick.
And get out of public accounting before you lose your sanity and your eyesight. I and the voices in my head know from experience. Trust us.
Posted on 2/15/14 at 8:41 am to brmach
Do you really think the construction company client is using a GAAP approved method of depreciation if their accounting records are kept on QuickBooks? Their accountants are the three person local accounting firm we are discussing. I doubt the client has anyone maintaining fixed assets regularly. The books are probably kept on a tax basis so any annual financial statements agree with the tax returns.
Posted on 2/15/14 at 8:58 am to Poodlebrain
Poodle, I was thinking the same thing. No chance they are issuing GAAP financial statements. Tax basis financials all the way.
However, the OP could ask the partner if the client is using GAAP basis for financials. That would be a way for the OP to kind of stick something back in the face of the obnoxious partner.
However, the OP could ask the partner if the client is using GAAP basis for financials. That would be a way for the OP to kind of stick something back in the face of the obnoxious partner.
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