Business Restart

[geekgirldany]

Client came by and said he did not do any work for his landscaping business. He has a couple of mowers that are depreicating. I asked him if he was closing it up completely. He said no, he was trying to get it started back in 2011 and does have a customer.

My questions is how to handle 2010? Leave the Schedule C with the depreciation and that is it? Or should they be taken out, coverted to personal use, and then put back in for 2011?

Thank you for any help
Dany

[oceanlovin'ea]

According to one of my clients who several years ago called IRS and asked this question of them because I wouldn't depreciate his carpet cleaning equipment when he had no income, you would do the depreciation and file the schedule C with the return.

I did the amended return for him and sent it in. He never got any negative letters on the issue.

Linda, EA

[MilTaxEA]

Sounds like the assets have been taken out of business use. I would dispose of them and then start depreciation again once he actually starts his business up again.

[Edit] By dispose I don't mean 4797; rather you don't depreciate them for this year since he doesn't have a business.

[ChEAr$]

Unless he had continued his best efforts to actually do business in 2010, e.g. buy a business license, seek out customers, etc, I would take the stance that he was not in business in 2010. I don't mean the assets were converted to personal use, just that there would be a one year hiatus in depreciation of them.

This is in line with generally accepted accounting principles of matching income with expenses.

[oceanlovin'ea]

That is what I told my client. You didn't do any business during the year so you can't take depreciation.
He called IRS and the person told him he could. I made all my notes before I did the amended return.

I would also be of the opinion that if you don't try to work your business during the year, you don't get to take any deductions. I would just not claim depreciation until he was working his business again. I wouldn't do it for anyone again.

Linda, EA

[geekgirldany]

Thank you all for responding. I will follow the advice given. Had not really thought about doing it that way. Taking the depreciation did not seem correct as the business was not active but wasn't sure.

[oceanlovin'ea]

I was looking up something else in TTB and noticed "Idle property" on page 9-21 of the 1040 edition.
It says:

"Continue to claim a deduction for depreciation on property even if is temporarily idle. For example, if use of a machine stops because there is a temporary lack of a market for a product made with the machine, continue to deduct depreciation."

Guess that is your answer.

Linda, EA

[Jesse]

Facts and circumstances - if no income because of market conditions, assets are idle. If no income because did not pursue business, assets aren't really "idle", their just is no business to use them in.