how do i change from an expense to depreciating?

A business MAY expense items, instead of depreciating, up to about a zillion bucks under the current tax laws. Whether to expense or depreciate then becomes a tactical decision. If you're making big bucks this year, it makes sense to increase expenses. If you're not making much this year, but plan to do so in the future, perhaps you should depreciate.

On the other hand, if you expense it now, and your company has a loss, that loss can carry forward.....

As your tax preparer will explain, all methods of dealing with capital purchases are depreciation methods. "Expensing" is actually an election to accelerate depreciation and must be reported on the depreciation form. Simply expensing it could result in the loss of the deduction entirely.

I would move the item from and expense account to a fixed asset account so that it can be handled correctly.

Going back to the check you wrote to pay for the item and making the change can be done.

Joanne,

Thank you for the response!

According to the qb manual, I have setup: Fixed Assets: -> Computers ---> Cost ---> Accum. Depr. -> Office Equipment ---> Cost ---> Accum. Depr.

Then I went back to vendors>enter bills and located my printer, for example, and put it in Office Equipment:Cost.

Is this correct?

QB then said create a depr expense account...

but I don't understand.. am I suppose to manually calculate each fixed asset each year (i want to do it once a year) and then put the total in depr. expense account? How does it automatically get in accum. depr fixed asset account?

Joanne wrote:

Exactly correct.

I enter depreciation at year-end after the tax return depreciation schedule has been prepared.

To be more correct, an estimated amount of depreciation monthly can be recorded to:

debit - Depreciation Expense credit - Accumulated Depreciation

to give the Financial Statement a more accurate picture of the company's profit.

The books would then be adjusted at year-end to agree with the tax return.

ok.. getting the hang of it.

question though: "after the tax return depreciation schedule has been prepared. "

can QB prepare this? or is this manual? how does it work? (could you give me an example of say, just a lapt> > Joanne,

I use profession tax preparation software and have depreciating assets carry forward from year to year as most tax preparers do. Each year I add the new acquisitions and method I'm choosing, record the sale of those removed from service and the rest is automatic.

For a manual entry to QB, you can read Publication 946 and Instructions for Form 4562

There are two issues:

1. Number of years a category of asset is required to be depreciated (class life)
2. Method used to determine the annual percentage of depreciation

Computers and peripherals are 5-year assets.

One method is called straight-line which means an equal percentage each year over the depreciation period. That would indicate a 20% expense each year.

One more twist is the half-year-convention which means that in the first and last year of acquisition, only half or 10% of the total is permitted in the example. In effect, the asset would have depreciation for six years.

There are lots of other choices and rules, one of which is an acceleration to take the depreciation all in the year of acquisition. The asset must qualify. There are payback rules if the asset is taken out of service before its class life is up.

I recommend reading, or at least reading the headings of, the two documents I've suggested.

Keep in mind when reading IRS information that you have the rules, then the exceptions to the rules, then the exceptions to the exceptions.