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Posted by paulthomascpa on November 4, 2009, 7:53 am
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> During the last 2 years, my partner and I listed all our expenses as
> normal expenses instead of capitalizing portions of it for
> depreciation. We had toned down our spending and capital investments
> and so there was not much involved, but technically some of the items
> such as lawn equipment and some medium-sized repairs probably should
> have been capitalized and depreciated.
>
> I plan to start again, but I also got to thinking about the possible
> consequences if we are reviewed. What are the typical penalties for
> deducting expenses right away that should have been depreciated? Are
> there fixed penalty amounts, or do they simply recalculate what our
> tax bills should have been and then charge the difference and
> interest?
They'll recompute the income by capitalizing the items that are assets,
compute depreciation that should have been taken, and bill you for the tax,
interest, and depending on the amount of difference, penalties. I've seen
penalties not apply, and I've seen them applied.
The good thing is that it's not a lost deduction, it's just taken over time.
So whatever expense you may lose in the earlier years, gets taken in the
later years.
While they're looking, they'll question other expense items as well, so have
all the documentation and reasons for why it's a legit business expense.
--
Paul Thomas, CPA
www.paulthomascpa.com
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