How to Complete Form 4562

How to Fill Out Form 4562

Form 4562 is divided into several sections, where you can choose the sections that apply to your business. In each section, you will need to enter information to calculate the depreciation or amortization amount for that section.

Part 1: Deduction Under Section 179

This is the deduction under Section 179, including Section 179 depreciation for listed property.

Part 2: Special Depreciation (Bonus)

This section is dedicated to special depreciation (bonus). Listed property is not eligible for this deduction.

Part 3 and Part 4: MACRS Depreciation and Summaries

This section is dedicated to depreciation under MACRS – Modified Accelerated Cost Recovery System (excluding listed property). In this section, you must categorize types of property based on recovery period and depreciation method. Depreciation on rental property is included.

Part 5: Listed Property

This section is dedicated to listed property. You will need information regarding the type of property, date of use, business investment use, basis, recovery period, depreciation method, and Section 179 cost. Information about total miles driven for each vehicle must also be included, with a breakdown of total business or investment miles driven, total personal and commuting miles.

Part 6: Depreciation

This section is dedicated to depreciation. You must record a description of costs, the date depreciation began, depreciation costs, recovery period or percentage, and depreciation for the year.

If the number of assets in a category exceeds the lines on Form 4562, you may include a statement or table showing each item of property and the required information.

Note: Completing Form 4562 is complex, with many conditions and limitations. Seek assistance from a licensed tax professional to ensure you receive the maximum allowable depreciation.

How to Submit Form 4562

Most small businesses file income tax returns on Schedule C as part of their personal tax returns on Form 1040. To report depreciation and amortization for your business, you will need to submit Form 4562 alongside this form and include information from Form 4562 in Schedule C, the tax form for sole proprietors and self-employed individuals.

Partners in partnerships and members (owners) of multi-member limited liability companies receive Schedule K-1, which shows their share of income, credits, and deductions including depreciation and amortization. They must transfer the information from this form regarding depreciation and amortization, listed property, and special depreciation to their personal tax returns (Form 1040).

Frequently Asked Questions

What is the difference between depreciation and amortization?

Depreciation and amortization are processes used to allocate the cost of business assets over a number of years, where a portion of the total is deducted each year. You can deduct a portion of the cost each year until it is fully recovered. Depreciation is used to recover the cost of tangible assets such as machinery, equipment, furniture, buildings, and improvements. Amortization is used to recover the cost of intangible assets such as patents, trademarks, and trade secrets. Amortization is usually spread over a 15-year period.

Do you need to fill out Form 4562?

You will have to fill out and submit IRS Form 4562 if you have long-term assets in your small business and wish to claim a deduction for depreciation or amortization of the cost of these assets for the year. You can depreciate tangible assets such as equipment and furniture, and amortize intangible assets such as patents and trade secrets, with different processes for each.

What assets or property can I depreciate on Form 4562?

Tangible assets such as buildings, machinery, equipment, and vehicles, as well as intangible assets such as patents, will be eligible for depreciation for tax purposes and can be included on Form 4562. It should be noted that land cannot be depreciated, so it cannot be reported on this form.

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Sources:

IRS. “Form 4562.”

IRS. “Instructions for Form 4562.”

IRS. “Publication 946 How To Depreciate Property.” Page 10.

Source: https://www.thebalancemoney.com/how-to-complete-form-4562-5210379

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