Does the cost of a tax program needed to be depreciated?

[veritas]

Two cocktails

I have been thinking about the pros & cons of expense vs depreciate arguments in this discussion. It has just now dawned on me, (after a couple of drinks, which is when I do my best "thinking") that when you buy/license/rent the software, you generally know you will only do about xxx number of returns.
Therefore the logical method is units of production.

vastly improve ones focus and clarity of thought.

To bad I quit drinking.

[DonPriebe]

To bad I quit drinking.

You mean ... there is no vino in veritas?

[ttbtaxes]

Unless one affirmatively elects Section 179, I can't think of a tax argument for expensing tax prep software unless the software, by design, is rendered inoperable by year's end and must be renewed to be used after that.

Otherwise, the software is available for use in years 2, 3, 4, 5 and beyond, whether or not it is likely to be used in those years. Probably most of us have software on our computers going back 7+ years.

[Bees Knees]

Unless one affirmatively elects Section 179, I can't think of a tax argument for expensing tax prep software unless the software, by design, is rendered inoperable by year's end and must be renewed to be used after that.

Otherwise, the software is available for use in years 2, 3, 4, 5 and beyond, whether or not it is likely to be used in those years. Probably most of us have software on our computers going back 7+ years.

Rather than argue and lose sleep over whether it has a useful life beyond one year, why not just expense it under Section 179 and move on? Who of us will ever use up the $500,000 / $2 million limits?

[ttbtaxes]

An ancillary benefit to using Section 179 is that for lending purposes our income is determined by business income after adding back depreciation. Deduct the software as an expense and you're exposed for tax purposes and cheated yourself should you need lending.

Use Section 179 and you achieve the same tax end but have an addback for lending purposes.

[BHoffman]

You mean ... there is no vino in veritas?

Hahahahahaha!

[S T]

Tax Software Professional

Since we all purchase Tax Software Professional, from Drake, TaxWorks, LaCerte(Intuit) Pro-Series and others

Why would it not be an annual expense? A limited benefit past 1 year - and then most of the Tax Software Pro Distributors named above - will provide it for free as a "demo" to those that ask for at the end of the tax season 10/15 of the current year

I have probably used the "Software Expense" on on my own personal return, but then now might be thinking of using the Sect 179 Expense (understanding that there is no exclusive license involved)

Now the question - some of us pay "per return" and others of us "purchase unlimited" for each tax year.

I see no problem "per return" deducting as a Software Expense - however, what about those of us that pay the cost based on "Unlimited Use"

To be depreciable property the item must have a useful life that extends substiantially beyond the year placed in service. Professional Tax Software does not seem to have that. Wouldn't only a small portion be useful beyond the "one year period" maybe 5-7% and would not that be de minimis.

Still on the fence - Expense under Software Listing Expense or Office versus Depreciating and using Sect 179.

I don't see a clear direction - but then what else is new in the Tax Code.

Sandy

[veritas]

lol

You mean ... there is no vino in veritas?

sadly not in my case.

[JG EA]

I don't think this matters much one way or another, but just in case you were very interested in how I do it - I expense it and label the expense on its own line as "yearly programs".

[FEDUKE404]

Full circle of discussion

I don't think this matters much one way or another, but just in case you were very interested in how I do it - I expense it and label the expense on its own line as "yearly programs".

Your observation re others is valid, and I will add "ditto" to your approach.

Everyone here generally knows the tax rules, although of course we all need some "redirecting" every now and then. I do think the very gray zone is whether the annual tax software purchased actually has a determinable useful life and, if so, whether that useful life exceeds one year.

But if you just say "It's software!!!" and then plunge ahead, that important distinction quickly gets lost.

I have gotten a few chuckles out of the discussions here related to $333.33 amounts et al. I have not entered any ¢ on an actual tax return since the days of the dinosaurs when I prepared returns by hand with a big ole eraser nearby.

FE

[veritas]

I have given this subject some

sober thought.

I believe that if you have deducted your tax software license expense annually you are on firm ground.

Years ago when I suscribed to Kleinrocks, there was a notice to the effect that you can deduct the annual costs.

Those that have chosen to amortize their costs are probably stuck with that method unless the ask for an accounting change.

[dtlee]

The nature of the software usage is quite key here. FE brings up some salient points, but this is definitely not something that clearly demands depreciation.

For "subscriptions" to products like a research service, it seems proper to take the cost as an annual expense. Research tools generally give current information as well as historical changes. You would not have access to "current" law without renewing a research license. TTB's products also come with access to this message board which will "expire" if we do not renew our products. These seem more like publications than software, despite how they are delivered.

Even though I have mentioned how I rely on older years of tax software, there are issues which render parts of the software obsolete. The e-file module of older software is useless once the IRS stops accepting returns electronically for that year. Even tax return mailing addresses added to letters and instructions are of dubious value. Definitely I would think pay per return costs are "current" expenses similar to any other pay per use service.

Another aspect that has not been mentioned, is how the vendor views your product license purchase. Does the vendor only provide support while you have a current active license? For many general software products, the license continues support and updates for several years until the product "end of life" is declared. I believe that for tax software, somve vendors may cease providing support for an earlier year to customers who are no longer current users. In that case, this again is more like an annual subscription than an asset with a life greater than a year.

For Drake software, they seem to provide updates to older products as long as they update the product even if you no longer are a current year user. However, their 2010 software license specifically states "These updates will be provided via the Internet at no extra charge to Licensee through April 15, 2011." I have no idea whether they will provide phone support answers to users who have not renewed, but if not, the product is not really supported after a year. The access they provide to the research product they bundle with their software ends on 12/31 and I believe they restrict access to their forum to current users only, so definitely there is a "subscription" component to their product even if it does have a life that extends beyond the initial year.