| If your small business is a Sole Proprietorship and you | | | | When to get help. If you happen to buy real estate, or |
| are involved with the preparation of your income tax | | | | if you purchase more than $250,000 of any type of |
| return, you will eventually run into Form 4562, one of | | | | property in a year, or if your property purchases |
| the most complicated tax forms on the planet, if not | | | | exceed your business profit, than you are better off to |
| the universe. But do not despair, for help is on the way. | | | | hire a tax pro to do your return. |
| The purpose of this article is to give you an overview | | | | Real estate is never eligible for the Section 179 |
| of Form 4562 so you know enough to decide whether | | | | deduction. Instead, you have to deduct the purchase |
| to tackle this form yourself or turn it over to a | | | | price over many years via a complex calculation |
| professional tax preparer. | | | | known as depreciation. For example, if you buy an |
| When to go it alone. The purpose of Form 4562 is to | | | | office building on January 1 for $100,000, you get to |
| report the purchase of business property and the | | | | deduct that $100,000 over 39.5 years. (Yes, you read |
| deductible expense related to that purchase. By | | | | that right. I did say 39.5 years.) So you only get to |
| "business property" we mean both personal and real. | | | | deduct $2,531 in the first year, $2,531 in the second |
| By personal property, we mean things like computers | | | | year, and so on. I know that sounds crazy, but that's |
| and machines. By real property we mean land and | | | | our tax system. My goodness, will you even be alive |
| buildings and building improvements. If you only | | | | for another 39.5 years? |
| purchase personal property for your business, and you | | | | But the point here is that these depreciation |
| don't buy more than $250,000 worth of such business | | | | calculations are quite complicated. Example: if you |
| property in a year, and your business has a profit that | | | | bought the building in February instead of January, the |
| exceeds the amount of your business property | | | | depreciation amount would be different than $2,531 in |
| purchases, then you just may be smart enough to | | | | the first year, which is why most accountants now use |
| prepare Form 4562 by yourself. | | | | a computer software program to do the calculations |
| The reason for this advice has to do with something | | | | and to keep track of the depreciation from year to |
| called the Section 179 deduction, which allows you to | | | | year. And should you sell the building before the end of |
| deduct the full purchase price of your business | | | | the 39.5 year depreciation period, you've got an even |
| property in the year of purchase, provided you meet | | | | messy-er calculation to deal with. |
| certain conditions. And some of those conditions | | | | So, the bottom line is this: If you qualify for the Section |
| include the items mentioned in the paragraph above. | | | | 179 deduction and can fully deduct the cost of your |
| If you meet the criteria listed above, you are likely to | | | | business property purchases every year, you just |
| qualify for the Section 179 deduction, in which case | | | | might prepare Form 4562 without a glitch or even an |
| you only have to complete Part I of Form 4562, a | | | | IRS audit. Otherwise, swallow your do-it-yourself pride |
| mere 13 lines. | | | | and get some professional help. |