Classifying the cost of tax software

[dsi]

What heading on the tax return do you write off your tax prep softwarfe? i.e., dues & subscriptions; legal & professional; office expense?

[DaveinTexas]

Depreciable Asset

We usually categorize our software as an asset, use Section 179 to fully expense it on form 4562, classified as off the shelf computer software.

You could argue that the useful life is less than one year because you have to renew it every year and to just label it as office supplies; but I use my old software all the time to prepare late and non-filed returns.

I'm bored today; it's 20 degrees with a wind chill of 9 and there's ice all over the roads. Needless to say my schedule is shot because Texans can't drive in the snow/ice!!!

[veritas]

I dont have the cite handy

But it is an ordinary deduction.

I describe it as an other deduction . Mainly because we use Lacerte and it costs a small fortune.

[oceanlovin'ea]

Other deduction

I also put it under other deductions.

We might still be able to use it later but it is only applicable to the current year's tax returns.

Linda,EA

[Hamacher]

Fwiw

I put the deduction under dues and subscriptions.

[ChEAr$]

I used to use the IRS term 'dues and publications', but here lately I use the account "software" as an other deduction for line 26 (on 1120S)

[FEDUKE404]

Using the KISS principle

I put the cost in Part V of my Schedule C and label it, surprise!, "tax software." There is nothing to hide by calling it exactly what it is....

Of course, something like a word processing program or a billing/payroll program would be handled differently due to the expected depreciable life of such software.

For all intents and purposes, such has a one-year life which negates depreciation/Sect 179. I could go with "supplies" but would likely have a hard time calling it "legal and professional services." It would be a stretch for "office expense" as that is a pretty broad category. (And I don't even see a line item for "dues and subscriptions" on Schedule C.)

Of course, when you get right down to it......I doubt if it matters.

BTW: Thank goodness I'm nowhere near the Chicago area tonight!

FE

[BOB W]

I have a line for "Annual Programs"... Been doing it that way for 30 years +.

[Gretel]

I call it "Annual Software Expense", which covers more than just my tax software.

[Burke]

DaveinTexas has the correct answer. Software you purchase is a depreciable asset, classified as 3-yr property, reportable on 4562. Recently, it has been allowed as a 179 deduction. After all, it is good for three years for amended and/or non-filed returns, maybe longer. My take is that for software updates (i.e, Quickbooks, payroll programs, McAfree, Norton, etc.) is it a current expense and reported under Other.

[FEDUKE404]

Useful life issue?

DaveinTexas has the correct answer. Software you purchase is a depreciable asset, classified as 3-yr property, reportable on 4562. Recently, it has been allowed as a 179 deduction. After all, it is good for three years for amended and/or non-filed returns, maybe longer.

I guess it all depends upon how you interpret the requirements for depreciation and annual tax preparation software.........if for whatever reason someone wants me to prepare a 1990 tax return, I still have the software (somewhere )


From IRS Pub 946:

To be depreciable, the property must meet all the following requirements.

It must be property you own.

It must be used in your business or income-producing activity.

It must have a determinable useful life.

It must be expected to last more than one year.

And then:

If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months.

As noted previously, this is a completely separate issue from "regular" software (payroll/accounting/word processing) that certainly does have a useful life of more than a single year.

FE