Guidance on Modern Asset Writeoffs

[Golden Rocket]

Years ago I would maintain property lists and depreciation schedules for clients. I considered it part of my due diligence to review these lists and make sure the client still had the property, whether or not it had been fully depreciated. And, of course, if they didn't have it, I would question what happened to it. My question in this regard might lead to a reportable transaction on Form 4797. It would be typical for a client to avoid the question, offering instead that the piece of equipment was dilapidated and laying in a pile of junk. However, if it was still on his premises I would keep it on the equipment list, irrespective of whether it was fully depreciated.

Possible explanations were: sold, donated, taken to scrap, traded in, etc.

In days of yore, this worked fine. However, today many such assets are computer hardware and software. Upon disuse, computer hardware is virtually unsellable, and software just stays on computers and networks. The client cannot realistically be pinned down as to disposition.

"Where is your HP computer bought in 2003?" "I dunno" - and in modern times he may be telling the truth. Many companies don't even capitalize PCs anymore, they just buy components online and assemble them much like you would do under the Christmas tree for your kid.

I am asking the forum for guidelines as to how to best retire such assets from equipment lists and depreciation schedules.

[ATSMAN]

I explain to my clients when I take an engagement about depreciation schedules and disposition of business assets and the tax ramifications. I make it clear that I am NOT their book keeper so they have maintain complete details of any sale,exchange, disposition and let me know when I do their return. As part of the interview I ask them did you sell, buy any business assets and make a note of it. If they fail to disclose it is their issue. I am not responsible.

I had a client who had fully depreciated his tractor rig and then sold it for $40,000. Did he get a shock when he answered truthfully!

[Mo Sheets]

Depreciation Schedule

Prior to filing the current year return, I print off a copy of the prior year depreciation schedule and write a note similar to what is listed below at the top of the depreciation schedule: Please review all of the items listed on the depreciation schedule (both currently depreciated items as well as items that are fully depreciated).

I ask them to cross through any item they no longer have, and to indicate the disposition of that item (sold/scrapped/etc.) and put the date and dollar amount received, if sold. I then have a line on the last page for them to sign and date. This is for my protection as well as theirs. I had a client one year who said "I sold that tractor two years ago"....I pulled out the signed copy and showed him where he had indicated a different tractor was sold....so I asked him....which one did you sell? Oh...he said "his wife" had inadvertently crossed out the wrong tractor. Sure she did!

Mo

[geekgirldany]

I ask them to cross through any item they no longer have, and to indicate the disposition of that item (sold/scrapped/etc.) and put the date and dollar amount received, if sold. I then have a line on the last page for them to sign and date. This is for my protection as well as theirs.

Thank you for mentioning the above. I usually only ask my clients to tell me if they still have the assets. Doing as you suggested is a great way to protect yourself and the client's assets

[Zee]

Great Question

My guess is one of the most abused areas on Small Business Returns since write-up work has been disappearing and tax preparer's aren't providing bookkeeping services. It is wise, indeed, to get a signed statement the depreciation schedule is complete & accurate and all items are still being held.