Discussion:Sec 179 & S Corps
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Discussion Forum Index --> Tax Questions --> Sec 179 & S Corps
| 25 January 2006 | |
| After claiming Sec. 179 depreciation on equipment, shouldn't the Balance Sheet (Sch L of 1120S) show the cost of equipment less the accumulated depreciation. For instance: If the cost = $2,000 & the Sec. 179 = $2,000, the Balance Sheet should show equipment as $2,000 less Accum. depreciation for a net value of $0. Isn't this correct? Thanks for your response. | |
Dneuschwander (talk|edits) said: | 25 January 2006 |
| Are you presenting the balance sheet on a "tax basis" or "book basis"? | |
| 25 January 2006 | |
| Accrual basis. I understand one can't show Sec. 179 depreciation on the books prepared according to GAAP. However, per IRS rules, you can claim Sec. 179 Dep on the 1120S tax return. My dilemma is that somehow my B/S is out of balance by the amount of the Sec. 179 depreciation when I report the accumulated depreciation on the B/S. i.e per the example in the above posting, on Sch. L of 1120S, if the Equipment is reported @$2,000 less accumulated sec. 179 depreciation of $2,000 - my balance sheet gets out of balance by $2,000. However, is it correct NOT to deduct the Sec. 179 depreciation despite claiming it on the tax return? | |
| 25 January 2006 | |
| It's an M1 difference. M1 helps reconcile the difference between tax and book. Hope I understood your question right. | |
| 25 January 2006 | |
| Amounts expenses under 179 don't increase assets on the BS. For example, a $10K asset is purchased and $5K is exp under 179. If depr is $1K, then the final BS would read Assets $5K, Acc Dep $1K and RE ($6K). I think it is this way because 179 is a separately stated item on the K1, but depreciation is not. Hope this helps. | |
| 26 January 2006 | |
| Thanks all of you....but I don't think I communicated well enough. My client purchased equipment worth $2,000 in 2005. He did not depreciate it in his accrual basis books of accounts. Therefore, in his Balance Sheet per book, the equipment is recorded at its carrying value $2,000.
However, on his 1120S tax return, he is claiming Sec. 179 expense for $2,000 for this equipment. In such a scenario, in Sec. L of the 1120S, should the equipment be reported at $2,000 less the Sec. 179 expense of $2,000 for a $0 carrying value? or should it be reported the way it is on the Balance Sheet per books, ie. $2,000 less $0 for accum. depreciation = $2,000 carrying value. Hope you can take the time to analyze this again. Thanks. | |
| 26 January 2006 | |
| The balance sheet on an 1120S (Schedule L) is supposed to be reported on the "book" basis. If books are kept on a tax basis, in your example you would report $2,000 as a fixed asset on the balance and accumulated depreciation of $2,000 (the amount of ยง179 deduction), net book value = $0. If, in your case, your books show fixed assets of $2,000 and related depreciation of $0, on the Schedule L you would show the $2,000 as a fixed asset and $0 as accumulated deprecation for a net book value of $2,000. Under this scenario you will need to reconcile your book/tax difference in depreciation of $2,000 on Schedule M. | |
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