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Depreciation for the IRS

I apologize for asking what is probably a simple question, but... I understand the "accounting" concept of straight line depreciation. My vehicle is used 100% in my business, it has a useful life of 5 years and no salvage value so I take the value multiply by business use percentage and divide by the

5 year useful life to get my depreciation amount for each of the 5 years. At years end I make the necessary journal entries to record said depreciation. books look good and I have an accurate picture of what my assets are worth. Now, my question is this, what the &*#! is the IRS talking about on form 4562??? Half-year convention, depreciation rate, "multiply the percentage rate by the property's unrecovered basis (basis for depreciation (as defined in column (c)) reduced by all prior years depreciation)?!? I realize that at this point I'm very frustrated with the tax codes so I'm probably not reading this correctly, or reading to much into it - but it seems like it is way to complicated for me to be doing it right! Am I missing something. Why can't I simply enter 1/5 the value of the asset - aka. the depreciation amount from my books - as the depreciation amount on form 4562? Could someone please help clarify how to "depreciate assets the IRS way"!
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Reply to
Kevin
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Now you understand why businesses (legitimately) keep two sets of books -- one for makes-economic-sense accounting and one for income tax computation. The business lobby has pushed over the years for the tax code to allow for accelerated depreciation.

You should download or otherwise obtain a copy of IRS Publication 946. You will use the tables in the back of the publication. Rather than playing games with "remaining basis", you simply find the table corresponding to the class life of what you're depreciating, go to the column for the month/quarter you put the asset in service, and then each year multiply the original depreciable cost of the item by the percentage listed in the table for that year. Nice and simple.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Reply to
Rich Carreiro

IRS uses a "Modified Accelerated Cost Recovery System" (MACRS) to depreciate property. It assumes the property was placed in service mid- year, and so you report depreciate of

5-year property over six tax years (one-half year for the first and last years of service). It usually involves the 200% declining balance method. See IRS Pub. 946 for more details.
Reply to
bono9763

Just what I needed, although I'm not sure which was more disturbing, the fact that the IRS needs an entire publication to explain how to report depreciation or that the publication was 113 pages long! At any rate, thanks for the response. kevin

Reply to
Kevin

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