1040x

[shoover]

I filed a 2019 tax return with a small business. I depreciated a piece of business equipment as a seven year property. I entered the incorrect basis for the equipment. I corrected the amount (in the program) and adjusted the section 179 deduction so total business income did not change. The adjusted gross income did not change and the tax did not change from the originally filled return. Is it necessary to file a amended return and if so will I have to mail it in?

[IRonMaN]

The IRS has been trying to go through enough paper to completely reforest the Sahara forest.  If the tax doesn't change, they aren't going to want to see it.  Make a note in the client's file and move on to the next project.

[Terry53029]

If it were me I would not, as you are not changing the accounting method it is just a math error. Going forward use the correct basis, and when you sell or dispose of the equipment, (if applicable) for prior deprecation you use the amount that was allowable. 

[hedgeslaw]

Sounds like you have 2 questions.

General Rule: Per Section 179 and §1.179-1 ..  A section 179 expense deduction for section 179 property shall be made on the taxpayer's first income tax return for the taxable year to which the election applies (whether or not the return is timely) or on an amended return filed within the time prescribed by law (including extensions) for filing the return for such taxable year

Regarding the Sec 179 deduction not changing business net income or client's taxable income ... it may be due to a limitation imposed by Sec 179 that prohibits that deduction from throwing the business income into a loss. Any unused Sec 179 claimed is carried over to next year. Therefore, if the business net income did not change because of that limitation, there would be no change in Client's taxable income or tax, but the Sec 179 carryover is locked in due to the original return having been filed.

Regarding necessity of filing an amended return ...  If you decide to change the Sec 179 deduction reported on their original 1040, an amended return is required and a 1040X can now be efiled.to claim the additional Sec 179 and claim the carryover of unused Sec 179 deduction.

BOTTOM LINE: If you merely change the cost basis and leave the Sec 179 the same, the taxable income and tax do not change, so there is no need to file an amended return. But the mix of regular depr and Sec 179 depreciation used will have changed so make appropriate changes so that next year is correct regarding regular depreciation used and unused and regarding the Sec 179 depreciation used and unused. If, however, you want to claim the additional 179 deduction and have it carryover, you need to do it on a timely filed amended return. In order to make the 1040X populate properly, follow the instruction in the HELP section of the program guide.

IF THIS ANSWERS YOUR QUESTION, PLEASE MARK it "SOLVED" SO OTHERS CAN FIND THE SOLUTION FAST. THANKS

[TaxGuyBill]

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@shoover wrote:

I corrected the amount (in the program) and adjusted the section 179 deduction so total business income did not change. 

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No.  You can't adjust Section 179 in the program unless you actually amend.

So if if you want to change the amount of Section 179, then yes, you need to amend to actually claim that amount of Section 179.

[Terry53029]

Thanks @TaxGuyBill  didn't notice he changed 179, only read basis mistake, got to read more careful in future 😁

[IRonMaN]

Out of curiosity, how many dollars are we talking about here?  

Unless we are talking significant dollars, I'm sticking with my original game plan and going with the CAGMC philosophy.

[Terry53029]

If not a big change I'm with you @IRonMaN  🤠 although I would leave returned as filed, not change anything, and just make a note

[TaxGuyBill]

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@IRonMaN wrote:

the CAGMC philosophy.

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Sigh.  I miss him.   😟

[IRonMaN]

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@TaxGuyBill wrote:

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@IRonMaN wrote:

the CAGMC philosophy.

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Sigh.  I miss him.   😟

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You and me both.

[shoover]

The return was filed with the equipment as a 7 year property and the basis was entered as $100000. No section 179 deduction was taken. The business had a profit as filed.The basis entered was a type error.

The actual basis is $10000. What thinking of doing is correcting the basis and using enough of the basis  as a 179 deduction to have the business income be equal to what was originally filled. By doing this the taxpayers AGI and tax due will not change.

[shoover]

The return was filed with a basis of $100000. That was a type error. The basis is $10000.

[IRonMaN]

You reported an asset that cost $10,000 as $100,000?  I'm changing my mind and amending ---------- I don't want the coppers to come and get me.

[sjrcpa]

Me three

[sjrcpa]

You said no Section 179 was claimed, but what about bonus depreciation?

And what about the state return?

I'm not really seeing how this 90,000 error would not change the tax. 

I am now in the amend camp.

[abctax55]

"...and using enough of the basis  as a 179 deduction"

§179 is an election.  You can't just "use" it by restating the amount in your file (plus... that copy the client has doesn't show that, does it). 

Used to be that §179 election couldn't be done on an amended return, but I believe that changed.  But you need to research that.  AND what impact is there on the state (if there is a state return...CA §179 is limited to $ 25K).

Edit to add - AMEND !!

[qbteachmt · Accepted solution]

"I filed a 2019 tax return with a small business"

Amend it now, then. That way, there is no issue carrying forward from here. That's why the 1040x exists.

[Skylane]

4

[Terry53029]

AMEND 

[shoover]

I did amend the return. The "$90,000 mistake" did not change the tax because the first year depreciation on a $100,000 seven year property placed in service on Feb 1st is $7143.  The actual basis is $10000. On the amended return the actual basis was entered and a $6880 section 179 deduction was taken. That made the first year depreciation of  $264. That made the business profit the same as on original return, so the taxpayers income and thus their tax did not change. On the 1040x all of the original amounts and the corrected amounts were the same. Looking at the 1040x the only way to know that anything was changed is to look at "Explanation of Changes" in part 111 of the form and then look deeper into the return.

[shoover]

I did get the answer I needed and after some other research I did amend the return. Thank you for answering my question. 

[sjrcpa]

" first year depreciation on a $100,000 seven year property placed in service on Feb 1st is $7143. "

That's not what I calculate.

[shoover]

I did not calculate manually. Instead I went on what Proseries calculates. If I am going to electronically file I will have to go with Proseries.

[TaxGuyBill]

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@sjrcpa wrote:

" first year depreciation on a $100,000 seven year property placed in service on Feb 1st is $7143. "

That's not what I calculate.

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That seems correct for SL depreciation (half-year convention).

[sjrcpa]

So it is. I didn't think of that.

[qbteachmt]

"I didn't think of that."

That's because Feb is the middle half.