The Code & The Coins (2024)

08/01/2024

Just say NO to tax pro audits. Get the real and uncut do's and don'ts on qualifying clients for filing statuses, credits & deductions.

07/12/2023

The Employee Retention Credit (ERC) emerged as a lifeline for many companies during the COVID-19 pandemic, incentivizing them to retain their employees and navigate through the financial turmoil. However, while the ERC served as a valuable support mechanism, it has also raised concerns about abuse when it comes to accurate claims for the credit.
James Creech, a senior manager with Baker Tilly’s tax advocacy and controversy team, explained that the origin of the current issues with the ERC can be traced back to before the health emergency and the absence of tax preparer oversight. “Tax preparation is kind of the Wild West,” Creech began. “Congress has not enacted a law saying that you have to have certain requirements to prepare claims for refund [and] there’s no prohibition against contingency fees.”
He noted that in a “normal time,” the lack of regulations regarding tax return preparation “wasn’t seen as something that could be a huge issue.” “But then we got COVID-19 [and] the IRS was asked to serve as a benefits administrator as well as a tax authority,” Creech said referring to several credit provisions enacted during the pandemic, including the ERC.
ERC background and issues
The ERC provided eligible employers with a refundable credit allowed against certain employment taxes during most of 2020 and 2021, which was accounted for using Form 941, Employer’s Quarterly Federal Tax Return. After the credit expired, businesses could still claim the credit by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund, which contributed, in part, to a significant and ongoing IRS backlog of these paper-only, filed forms.
Beginning in 2022, the IRS began warning taxpayers to be on the lookout for third parties advising them to claim the ERC, when they may not actually qualify for the credit. These warnings continued with more frequency and even made the top of the IRS’s 2023 “ Dirty Dozen ” list of tax scams. Finally, the IRS ordered an immediate stop to new ERC processing in September 2023, noting that ERC promoters can collect a contingency fee of up to 25% of the refund.
“And so, what I think started out as a very well-meaning credit that was designed to keep a lot of people on the payroll during really difficult times got turned into something where promoters realized there was this opportunity to charge a contingency fee,” Creech said. He added that when ERC promoters realized they could charge a fee with minimal oversight and documentation, “the incentive structure flipped and the ERC became about how many credits can you prepare.”
Moratorium, more questionable claims, and guidance
This surge of questionable claims is what the IRS said prompted it to impose a moratorium on ERC claim processing until 2024. As of September 30, 2023, the IRS Criminal Investigation (CI) initiated 301 investigations involving over $3.4 billion of potentially fraudulent ERC claims for tax years 2020 through 2023. The IRS also announced an initial round of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims on December 6, 2023.
Creech explained that this surge had to do with a change in rationale from trying to find a way to continue to pay employees when a business was forced to shut down for a period of time; to trying to rely on Occupational Safety and Health Administration (OSHA) guidance to meet the ERC definition of an eligible employee, for example.
“And as we get further and further removed from the pandemic, the rationale for the claims gets further and further removed from the accepted ‘slam dunk’ cases,” Creech said.
Recently, the IRS addressed the ERC-OSHA claim angle, stating that taxpayers may not rely on guidance from the agency to meet the definition of an eligible employer for the purposes of filing a claim for the credit.
Congressional action and requiring more documentation
Creech hopes that after the IRS moratorium on ERC claims ends next year, “Congress takes remedial action to say the program as we intended it to be in March 2020 is no longer what the program is and what do we need to do to stop these expenditures that shouldn’t be happening at the scale they have been happening.”
He noted that to avoid a repeat in the high volume of questionable claims after the moratorium is lifted, the IRS should require more documentation for ERC claims. “On the 941xs that are filed, you claim the ERC and it’s just a couple of lines,” Creech said. He added that requiring further information to support ERC claims would generally be a welcome step for tax administration.
Getting a second opinion and withdrawing a claim
Creech also advised that businesses and other tax professionals seek a “second opinion on an ERC claim before it is filed.” “You know, I think I’d want a second opinion, to tell you the truth,” Creech admitted. He added that many who have claimed the ERC did not seek out additional guidance but noted that “it’s not too late for a second opinion, especially with the withdrawal processes that are available now.”
The IRS permits taxpayers the opportunity to withdraw their ERC claim if certain criteria are met. Penalties and interest are not imposed if the ERC claim is withdrawn before it is processed.
“The ERC has just been such an evolving credit that I don’t think there’s any shame in saying, ‘Look, we thought we were eligible, we might have gotten a little ahead of ourselves by using somebody who reached out and promised easy money and a contingency fee that I didn’t have to pay until I got the money, but let’s take a second look at it now,'” Creech explained.
Using an outside subject matter expert
He also advised that businesses deciding to review their ERC claim should start with an outside subject matter expert. “There always has to be that level of professional skepticism that goes into the second layer reviews so people understand the risk,” Creech began. “Because I don’t think many business owners understand that there is risk here.”
For example, if an employer is audited and the amount of the ERC is reduced, an accuracy-related penalty may apply, which is 20% of the underpayment of the tax understated on the return.
“I think the messaging the IRS used has been very well targeted at practitioners, but I think they could probably revamp some of the message and get it out to end business owners or taxpayers in terms of the jeopardy they are in [and explain] that this withdrawal process is a golden opportunity to sleep easy at night,” Creech suggested.
He continued to explain how fast an IRS audit can happen and that if penalties are assessed on an ERC claim where the business already paid a contingency fee, “it can really turn into a net loser very quickly.”
Statute of limitations and more guidance
Due to the statute of limitations, the ERC credit may be claimed until April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims on Form 941-X. However, during this time-out from new ERC claim processing, IRS guidance has removed some of the avenues that were used to justify the credit. Other than OSHA, IRS guidance also states that an employer merely following Centers for Disease Control (CDC) or Department of Homeland Security (DHS) guidelines has not partially suspended operations due to the governmental orders.
“I think that there’s going to be a lot of credits that get the door closed on them because of that guidance,” Creech said. He also questioned what may happen “to all these people who thought they were getting something safe?”
Questionable claims may continue
He concluded by saying that although the IRS moratorium has been successful in curtailing some of the questionable ERC claims, it will remain difficult for the IRS to continue to dissuade such claims throughout the rest of the time the ERC may be claimed. “It’s hard to compete when there’s advertisements on every baseball, football, basketball game you watch.”
To learn more about how Checkpoint’s payroll solution can help your business, visit https://store.tax.thomsonreuters.com/accounting/Practice-Area/Payroll/c/2400.
The post How the “Wild West” of Tax Preparation Led to Massive ERC Issues appeared first on Tax & Accounting Blog Posts by Thomson Reuters.

The Employee Retention Credit (ERC) emerged as a lifeline for many companies during the COVID-19 pandemic, incentivizing them to retain …

06/12/2023

As the end of the calendar year approaches, businesses embark on the crucial task of finalizing their payroll processes. Year-end payroll is not merely about closing the books but a comprehensive undertaking that requires meticulous attention to detail, adherence to legal requirements, and seamless coordination among various departments.
When it comes to successfully navigating the various tasks, processes, and responsibilities of payroll year-end, Tom Rose, Senior Vice President, Customer Success and Operations, at TriNet, a cloud-based professional employer organization for small and medium-sized businesses, emphasized that “communication is key.”
“I’ve been through a lot of what we call ‘year-end, year-start’ because there’s not only actions and things you really need to focus on at the end of the year, but it’s also preparing for the beginning of the following year,” Rose explained.
Complexities of payroll year-end
As any payroll professional knows, this complex annual process is a multifaceted procedure encompassing various elements and modifications, from tax calculations to compliance with ever-evolving regulations. “It changes year-over-year and there’s more of those changes – it’s not less,” Rose stressed.
For example, Rose pointed to the complexities regarding the significant shift to a more remote and hybrid workforce during, and even after, the COVID-19 pandemic where having an in-depth understanding of multi-state payroll laws and regulations has become crucial for payroll professionals.
According to the U.S. Bureau of Labor and Statistics (BLS), about 15% of individuals worked full workdays at home before early 2020. That percentage increased sharply to nearly 40% during the height of the health emergency. As of August 2023, the BLS said that about one in five (19.5%) individuals worked remotely for wages, showing an overall net gain in remote work from before the pandemic.
“[Increased remote work has] added a lot to the year-end processing,” Rose noted. “There’s guidelines and rules within each state on how they work and how they interact.”
Accuracy of employee data
Being hyper-focused on the accuracy of employee data is one of the most important components of a successful year-end. This data frequently serves as the bedrock for tax calculations, benefit management, and information reporting.
“At the end of the year, it’s making sure that employees are focusing on their statements, their earnings, [and] the way things are being calculated,” Rose said, adding that employers should advise employees to check their personal and withholding tax information for accuracy before the end of each year to reduce the need for filing corrected information and employment tax returns down the road.
“Make sure that it all ties out in November, December and is clean for that break going into the following year,” he explained.
Balancing artificial intelligence
As a way to help minimize errors and speed up certain tasks associated with payroll year-end, some businesses are implementing next-generation artificial intelligence (AI). From an AI perspective, Rose thinks that there are things that are very “black and white” when talking about taxes and structures. However, he also believes that when it comes to the security around payroll information, there remains a critical human component.
“I don’t want to minimize AI. I think there’s a future there. There’s another level of support,” Rose began. “But it’s still that human interaction that’s so important when you talk about these sensitive topics.”
This is also important when it comes to compliance as the Equal Employment Opportunity Commission (EEOC) announced a first-of-its-kind settlement regarding an AI-related employment discrimination lawsuit in September 2023. President Biden issued an executive order on AI at the end of October 2023 and a congressional subcommittee held a hearing on AI and the future of work on October 31. Payroll-related AI laws may become a reality in the near future, adding another layer of compliance to the industry and the year-end process.
Ensuring payroll compliance
Payroll compliance comes in many forms across multiple departments in a business. It relates to taxes and labor laws that all come to a head at the end of each year. “We hear the horror stories of a simple misclassification that snowballs and becomes this big thing,” Rose said, regarding considerations related to the employer-employee relationship.
The U.S. Department of Labor is expected to issue a new, more employee-friendly worker classification rule soon. As with remote work and other complicated topics relating to payroll, there are often multiple rules to consider at the federal, state, and local levels.
To alleviate fear or stress related to compliance concerns, Rose recommends a well-educated payroll workforce and other partnerships to set a business up for success. “If you really focus on the details and you have the right partnerships, you’ll set yourself up for success,” he said, adding that the process of payroll compliance does not stop after December or January. “The changes will continue through the course of the year and you just need to be nimble.”
Conduct a payroll year-end retrospective
On the tail end of payroll year-end, in order for an employer to examine their payroll year-end process to see what worked and what needs work, Rose recommends businesses conduct a retrospective meeting. This will help shine a light on areas where improvement is required for the next year-end. “You want to improve every year,” Rose stated. “We’re constantly adjusting and constantly learning from how we [process year-end].”
A typical payroll year-end retrospective should include reviewing accomplishments and milestones, assessing any challenges and obstacles, extracting lessons learned, implementing improvements, encouraging feedback and collaboration, and setting goals for future success.
Make sure to analyze the process for reviewing and updating employee information, as this can be the cause of errors discovered after the fact. Also, review the payroll records to check for discrepancies, benefit reconciliation, and proper payment of bonuses and other compensation to avoid tax reporting errors. In addition, keep track of any changes in tax laws or regulations that might affect the upcoming year-end at the federal, state, and local levels.
Continue year-end success with communication
In closing, Rose again stressed the importance of communication when it comes to a successful payroll year-end. “[It’s] the busiest time of the season…[and] you’ve got to continue to communicate to the employees that the actions they need to take will really set that payroll expert up for success,” Rose explained.
He added that continuous reminders and year-end training based on analysis and data from previous end-of-year payroll processing will help mitigate errors; and to pay close attention to the small things since they have the potential to develop into much bigger issues throughout the year.
To learn more about how Checkpoint’s payroll solution can help your business, visit https://store.tax.thomsonreuters.com/accounting/Practice-Area/Payroll/c/2400.
The post HR/Payroll Solutions SVP: “Communication is Key” for a Successful Year-End appeared first on Tax & Accounting Blog Posts by Thomson Reuters.

As the end of the calendar year approaches, businesses embark on the crucial task of finalizing their payroll processes. Year-end …

05/12/2023

Most tax professionals know that dealing with forces beyond their control—and the costly disruptions they cause—is a way of life. Unfortunately, many tax departments are feeling a strain on their resources as a result of these events. This, in turn, puts tax departments at greater risk for even more audits and stiffer penalties. This trend has been especially true during the past five years, and is sure to continue in the years ahead.
“We are living in the environment where every day we are hearing about new requirements, whether it’s reporting, compliance, or new taxes being introduced,” said Lubov Mikulaninecova, Director of EMEA Tech, Technology, and Transformation at EY, during the Thomson Reuters webinar “Effective risk reduction strategies for today’s corporate tax department.”
The good news is that there are proven strategies for tax professionals to effectively navigate this change while achieving their goals and balancing their workloads. During the webinar, panelists discussed ways to reduce risk, avoid audits and potential penalties, and explore solutions to the challenges ahead.
Tax technology and automation: two of the biggest differentiators for tax departments
An important component of any strategy involves automation. For tax departments, it comes down to operations with built-in adaptability and resiliency that will determine not only their survival but also their competitiveness within the market.
Technology and automation can absolutely help increase efficiency in corporate tax departments, especially when it comes to mitigating tax risk and liability and guarding reputational risk. Automation is also considered an essential part of improving processes and productivity. And, not surprisingly, Artificial Intelligence (AI) is viewed as a game changer for tax compliance and automation, helping with resourcing issues and helping tax professionals provide higher-quality advice with less effort.
That’s why it is crucial for firms to integrate technological solutions to streamline processes and manage compliance risk. “There is a bigger push to kind of focus more on the operating efficiency and trying really to streamline, standardize and automate the compliance tasks with the introduction of technology solutions.,” Mikulaninecova said.
Nadya Britton, Enterprise Content Manager for Thomson Reuters, emphasizes the critical role of technology in managing tax risk. Britton notes that a big reason many firms feel they can “mitigate and manage risk and decrease tax liabilities” is because they’re relying on technology to help them.
Britton says that investing in automation has additional benefits, such as freeing up staff to focus on more meaningful tasks, or even saving firms money that can then be invested in hiring additional staff.
One such solution is ONESOURCE Indirect Tax Determination, a global tax determination software that automates tax calculations. The software can help firms drive greater efficiency while giving firms confidence in the results and the process.
Under-resourcing in corporate tax departments leads to higher penalties from audits
Half of the respondents to a 2023 survey conducted by Thomson Reuters, in partnership with the Tax Executive Institute, felt under-resourced and experienced higher penalties from audits. The survey consisted of more than 350 senior tax professionals across different industries.
“Under-resourced tax departments are more likely to incur higher penalties when audited,” Jesse Shannon, Global Indirect Tax Specialist at Thomson Reuters, said during the webinar.
Nadya Britton pointed out that “for the departments who felt under-resourced, they were likely to have more audits and consequentially face higher penalties. 72% of the under-resourced departments incurred at least one audit within the last twelve months.”
These serious consequences underscore the need to have a strategy in place. It can help under-resourced departments manage audits effectively. Mikulaninecova notes that even if a firm is under-resourced, having a strategy in place to manage the role of technology at a firm is a good way to proactively prepare for “all these circumstances.”
Mikulaninecova further notes “a lot of movement in that space as well, where new roles like head of tax operations or tax technology manager or tax data scientists are being introduced again to manage also the projects and have this kind of continuous improvement cycle really working and manage well.”
Measuring performance in corporate tax departments is essential
A formalized process for performance measurement is an absolute necessity in corporate tax departments. Yet, only a third of the departments polled in the Thomson Reuters / Tax Executive Institute survey said they have a formal process in place for measuring performance.
This poses several challenges, including making it extremely difficult for corporate tax departments to evaluate their success and identify areas for improvement. Mikulaninecova emphasized the increased adoption of qualitative Key Performance Indicators, or KPIs, for short.
“There is a shift towards looking more at the operational side of things right,” Mikulaninecova said, adding that firms are examining the efficiency and effectiveness of the processes they have employed and questioning if they’re “really focused on the routine compliance work or really focus on what we call value add activities right.”
Success in the years ahead depends on not only employing the right technology but also being able to effectively measure success. Having effective processes in place will give you an edge over the competition and help your next tax department audit go smoothly.
To learn more about the challenges facing today’s corporate tax departments, see our 2023 State of the Corporate Tax Department Report.

The post Is your tax department spending more time and money because of audits? appeared first on Tax & Accounting Blog Posts by Thomson Reuters.

Technology and automation can help mitigate tax risk and liability in corporate tax department audits, while also increasing efficiency

04/12/2023

Jump to:

What does “authentic” mean?

How can embracing authenticity guide your firm’s client service initiatives?

Making authenticity a priority in your client service strategy

Earlier this week, Merriam-Webster announced its word of the year for 2023. The winner? Authentic.
An NPR article on the announcement raises a number of interesting points on why “authentic” became popular this year. But it got us thinking about what it could mean on a practical level for accounting firms – especially with regard to their client relationships.
If “authentic” was one of the most highly searched words on merriam-webster.com, were your clients among the people searching for it? And, if so, what answer were they looking for in their queries? It’s worth considering that, if “authentic” was among the most highly searched words in 2023, that the search intent could go much further than simply wanting a clear definition.
After all, “authentic” is not a new word that would be unfamiliar to most people. Unlike “woot” in 2007 or “gaslighting” in 2022, “authentic” and “authenticity” have been part of the American lexicon for centuries. So, what’s driving this renewed interest in authenticity? As a tax and accounting professional, you should be concerned with all of the possibilities – especially the ones implying a client’s desire for an authentic relationship with you and your firm.
What does “authentic” mean?
If we take a look at Merriam-Webster’s definition of “authentic,” it’s clear that it can mean several different things, depending on the context:
Authentic: adjective
1: not false
an authentic cockney accent
2: true to one’s own personality, spirit, or character
is sincere and authentic with no pretensions
3a: worthy of acceptance or belief as to or based on fact
paints an authentic picture of our society
3b: conforming to an original so as to reproduce essential features
an authentic reproduction of a colonial farmhouse
3c: made or done the same way as an original
authentic Mexican fare
If we look across the majority of definitions, the overriding theme is connected to the idea of something “real.”
How can embracing authenticity guide your firm’s client service initiatives?
If the large volume of searches for the word “authentic” does, in fact, indicate a global desire for more authenticity, especially in the age of artificial intelligence, your firm should be taking steps to make the client experience as authentic as possible. Let’s take a closer look at some possible strategies:
Conduct in-person meetings with your tax and accounting clients
In the hybrid working world that’s developed over the past few years, many businesses have adapted to phone calls, online meetings, email, or other types of remote communication. What might be more of an unknown is what client preferences are with the return of – at least partial – in-office work across most industries.
If you have a client who typically preferred meeting in person in the past, put that option back on the table. You might find that it has the potential to rejuvenate stagnant client relationships and further strengthen even the strongest ones.
Send personalized communications
It might seem like a somewhat minor step, but personalizing communications and deliverables can go a long way toward helping clients feel cared for rather than being a name on a list. It’s a small extra step that can bring miles of goodwill when it’s done consistently and sincerely.
Ask clients what they want
This point might sound straightforward, but it truly goes to the heart of client service. In the tax and accounting industry, the goal is to provide clients with the best possible outcome for their business needs. But every relationship is different. And every client has their own feelings about how they would like the relationship to develop.
Take the time to learn about how your clients feel about the current state of the relationship. Ask them if there is anything that they would like to see handled differently, or if they seek business advice. In 2023, 93% of tax and accounting firms said their clients are now looking for some form of advisory services.
While it’s impossible to accommodate every request from every client, these conversations are a good starting point for you to get an idea of what’s working in your client service model and where there might be room for change.
Don’t forget about the knowledge and needs of your own team
One other important aspect of this conversation about authenticity should be keeping your team in mind throughout the evaluation and implementation of any new client service strategy. There may be no other place where authenticity is more important than with your own frontline staff.
Get their input on how they provide superior client service, and let them have a voice in the development of a new strategy. Their work directly with clients can help to uncover some best practices that could be implemented across the business and work well for all your clients. Additionally, it could also help to ensure that their personal work preferences are considered as part of the new client service initiative.
Making authenticity a priority in your client service strategy
Take some time in the coming weeks and months to consider the implications of Merriam-Webster’s word of the year for 2023. Think about how you can bring more authenticity to your client relationships and interactions – and how authenticity can elevate your firm’s client service.
Learn more about Thomson Reuters tax and accounting solutions and how they can support your client service initiatives.
The post Merriam-Webster’s word of the year and your client service strategy appeared first on Tax & Accounting Blog Posts by Thomson Reuters.

What can the word of the year, 'authentic,' mean on a practical level for accounting firms – especially with regard to their client relationships?

04/12/2023

Jump to:

What is Form 4562?

Form 4562 instructions

Is Form 4562 required every year?

What is listed property for depreciation?

What does a depreciation schedule look like?

Section 179 and expensing property

Running a company is expensive. Therefore, helping business clients save money and reduce their tax burden by expensing property they’ve purchased for their company and claiming deductions for depreciation or amortization of assets is critical.
If, during the tax year, a client has purchased a tangible or intangible asset and is looking to claim depreciation and amortization deductions or expense certain property under Section 179, Form 4562 must be filed with their annual tax return. Let’s take a closer look at the form and its uses.
What is Form 4562?
As the name suggests, Form 4562: Depreciation and Amortization is an IRS form that business taxpayers use to claim deductions for depreciation and amortization of tangible or intangible assets. However, Form 4562 also has additional uses. It is used to expense certain property under Section 179, and to provide information on the business or investment use of vehicles and other property.
Form 4562 instructions
When completing Form 4562: Depreciation and Amortization there are six parts to be aware of:
Part I: Election To Expense Certain Property Under Section 179
If a business client has made a purchase of equipment and other eligible property during the tax year and they would like to immediately write-off a portion, if not all, of the expense (versus recover the cost of the asset over a number of years) then Part I of Form 4562 must be completed.
Section 179 is an immediate expense deduction that allows taxpayers to deduct a set dollar amount. For tax years beginning in 2023, the maximum expense deduction allowed under Section 179 is $1,160,000 (up from $1,080,000 in 2022).
As explained by the IRS, this limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900 (up from $27,000 in 2022).
Section 179 deductions are limited to annual taxable business income. In other words, a business cannot deduct more money than it made.
Part II: Special Depreciation Allowance
If a business client wants to write off a large percentage of an eligible asset’s cost in the first year it was purchased and take advantage of an additional special depreciation allowance, also known as bonus depreciation, then Part II needs to be completed.
Bonus depreciation is similar to Section 179 in that it is an immediate expense deduction; however, bonus depreciation differs in that it allows taxpayers to deduct a percentage of an asset’s cost upfront. Business clients may be able to combine bonus depreciation and Section 179 deductions to claim both deductions in the same tax year.
Under the Tax Cuts and Jobs Act (TCJA), the 100% write-off of eligible property expired Dec. 31, 2022. And, unless the law changes, the bonus percentage will decrease by 20 points each year for property placed in service after Dec. 31, 2022, and before Jan. 1, 2027. In 2023, the special depreciation allowance is 80%. For 2024, the percentage drops to 60%.
Part III: Reporting MACRS Depreciation
Rather than writing off assets using Section 179 or Bonus Depreciation, it may better serve the client to depreciate assets using the Modified Accelerated Cost Recovery System (MACRS). If so, section III must be completed.
MACRS is used to depreciate most business, rental, and investment property placed in service after 1986.
MACRS depreciation enables a business client to claim a larger tax deduction in the initial years of an asset’s life and deduct less in the later years.
Part IV: Summary
This section summarizes Parts I, II and III, in addition to any listed property included in Part V.
It should be noted that if a business is a partnership or S corporation, this step can be skipped because the totals will be entered on each shareholder’s tax return.
Part V: Listed Property
This section lists automobiles and other property that are used for both business and personal purposes. More specifically, it is used to report the following, according to the IRS:

The special depreciation allowance for automobiles and other listed property.
MACRS depreciation on automobiles and other listed property.
The section 179 cost elected for automobiles and other listed property.
Information on the use of automobiles and other transportation vehicles.

Part VI: Amortization Deductions
This section is used to report the amortization of any intangible assets, which are non-physical assets like patents, trademarks, licenses, copyrights, and lease agreements.
Is Form 4562 required every year?
Form 4562 is required for each year that a business client is depreciating or amortizing any assets and deducting that expense on their tax return.
So, who must file Form 4562? As outlined by the IRS, taxpayers who are claiming any of the following must file Form 4562:

Depreciation for property placed in service during the 2022 tax year.
A section 179 expense deduction (which may include a carryover from a previous year).
Depreciation on any vehicle or other listed property (regardless of when it was placed in service).
A deduction for any vehicle reported on a form other than Schedule C (Form 1040), Profit or Loss From Business.
Any depreciation on a corporate income tax return (other than Form 1120-S).
Amortization of costs that begins during the 2022 tax year.

A separate Form 4562 must be filed for each business or activity on the return for which Form 4562 is required.

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What qualifies as business income for Form 4562?
The total cost that a business taxpayer can deduct is limited to their taxable income from the active conduct of a trade or business during the year.
This means that the client “meaningfully participates in the management or operations of the trade or business,” according to the IRS. A client who is simply a passive investor is not considered to be actively conducting a trade or business.
What is listed property for depreciation?
Listed property is a certain type of depreciable asset that is primarily used (over 50%) as a productive asset for that business
More specifically, the IRS defines listed property as the following:

Passenger automobiles, which are generally any four-wheeled vehicles made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight.
Any other property used for transportation, unless it is an excepted vehicle.
Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment).

What does a depreciation schedule look like?
A depreciation schedule is used to outline how a fixed asset’s costs are expensed over its useful life, using the chosen accounting method (I.e., straight-line method, double-declining depreciation, etc.).
It typically includes such information as a description of each asset, the purchase date, the cost, an estimation of the life span, and the salvage value.
The structure of a depreciation schedule will typically look like the following:

The first line of the schedule structure contains sales revenue.
Next, include a section for capital expenditures, referencing historical capital expenditures from any available periods.
Then, create another section for depreciation expenses. Be sure to reference historical depreciation expense for any available periods.
At the bottom of the depreciation schedule, prepare a breakdown of the changes in assets.

Section 179 and expensing property
In today’s challenging economic environment, business clients are increasingly looking for ways to save and reduce their tax burden.
To better serve your clients and help them make more tax-efficient decisions, turn to Thomson Reuters for expert guidance on depreciation, amortization, and other cost recovery issues through top-of-the-line solutions.
Thomson Reuters Fixed Assets CS is a robust fixed asset management software that makes adding, changing, disposing, and transferring assets quick and easy. Learn more by watching a demo of the tool.

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The post What to know about Form 4562: Depreciation and Amortization appeared first on Tax & Accounting Blog Posts by Thomson Reuters.