Does 179 go in "accumulated depreciation" account?

[frankn88]

Hi, I'm new here, and searched the archives to find an answer. There were several that were close, but I'm so completely confused I think I need specific help. Thanks for your time, I really appreciate it! I'll start with the most urgent question:
So, I've got a farm business and over the past several years (business started in 2007) I've made several equipment purchases and some I have used the 179 depreciation deduction. I've got Quickbooks SS and my accountant (who set up my quickbooks and USED to do my taxes) set up an asset account called "accumulated depreciation". He and now I, have been adjusting this account at the end of each year to add in the calculated "regular"depreciation from his accounting (and now from Turbotax since I'm doing it). While he was doing the taxes, I never had a 179 deduction. So my question is, if I buy a piece of eqmt for $1800 and take the full 179, should I add that into this "accumulated depreciation" account? I'm confused because turbotax on my "Depreciation and Amortization Report" does not seem to include 179 and "Special" depreciation allowances in it's "Prior Depreciation" column?
Should not my "Accumulated Depreciation" account match Turbotax's "Prior Depreciation" + "Current Depreciation" totals?
Thanks again for any help!

 

[swinters]

Your question is a little big confusing, but I think I understand what your asking. If you are creating a trial balance and doing accounting entries, yes you would add the section 179 to the accumulated depreciation account in the trial balance. But what I think what you are asking is you are looking at a depreciation schedule that is being generated from the tax program. When you look at the accumulated depreciation total in the schedule, it does not include the amount of section 179 that was taken. If this is case, you will not see the section 179 in the accumulated depreciation. The reason for this is 179 is a basis reduction. So for example: you pay $5,000 for an asset and take $2,000 of section 179 in the year of acquisition. The $2,000 is a reduction of basis and the resulting basis is $3,000 and at the end of the depreciable life, the total accumulated depreciation on the schedule should be $3,000, with the $2,000 be in a column titled something like "reduction in basis".

 

[frankn88]

Hmm, so you're saying my $1800 piece of equipment that I took the total 179 for, now has a 0 basis (which is what Turbotax shows) and I need to create some kind (what kind? asset? liability?) of new account called "reduction in basis" and make a JE (debit? credit?) showing $1800? And it also sounds like you ARE saying my accounting (quickbooks) "Accumulated Depreciation" account SHOULD match what Turbotax generates each year? And if I'm creating a new "reduction in basis" account don't I need to create some opposing (asset or liability) account to match it? Sorry, my understanding of doubly entry accounting is limited, at best...
Thanks for your help!

 

[ArcSine]

Strictly speaking, it's not required that you take the same depreciation expense each year on your regular books (QuickBooks) as on your tax return (TurboTax). Some businesses take full advantage of whatever "rapid writeoff" methods are allowable for tax purposes, while keeping their financial statements on some other basis which uses a depreciation method that's a better reflection of the economic reality of spreading the cost of an asset out over its period of use.

That said, though, it's much simpler to keep books and tax on the same basis. If you have no compelling reason for using different book-vs-tax methods, take the same depreciation expense each year (including Sec 179 and bonus depr) on QB as you do on TT.

On your example, you say TT shows a zero basis for an asset you bought for 1,800 and immediately took 1,800 of Sec 179 on. QB would also show a zero basis in that same asset if you took depreciation expense of 1,800 on QB in the first year as well. On your QB balance sheet you'd see a fixed asset cost of 1,800 and an offsetting amount in Accumulated Depreciation of 1,800....net of those two = 0.

As to your issue of TT not appearing to fully include all prior depreciation---including previous 179 and bonus chargeoffs---I'm not familiar with TT details, but you may need to go back to the "asset entry" or "asset setup" area of the program, and tell the program how much prior depreciation is associated with a particular asset. Some depreciation programs assume that you've only taken ordinary depreciation to date, but give you the opportunity to override (or "force") the prior depreciation number if need be.

Good luck with it!

 

[frankn88]

Ok, that was very helpful. I agree I just want to keep it simple for my simple mind - I don't give a rat's ass if it's really reflective of how my property ages! And so maybe I'm not completely understanding what turbotax does anyway, because on the depreciation report it reports totals for "prior depreciation" (which is the regular depreciation), and also for "179 depreciation" in another column. In Quickbooks, I only have one "accumulated depreciation" account, but it sounds like you're saying I can just lump it all into that one account. Thanks everyone for your help. I appreciate it!

 

[ArcSine]

QB is giving you your total accumulated depreciation as a single number....TT is showing you the breakdown of AccDep into its two components. Just two different presentations of the same thing.