Depreciation Dilemma

Today TaxMama hears from Diana who grumbles, “I tried to list a new laptop using Section 179 for my new business.
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The Feds were OK. But I could not list the full amount on the California return due to their lower Section 179 limits, so I left it off my taxes. How do I claim the property I bought for my business without violating state law?
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Dear Diana,

It’s really a total pain when a state’s rules, like California’s, don’t agree with IRS.

In fact, it will be a pain for a loooooooong time to come.
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But you can deal with it. Here’s what you do.

Use the full legal limit for your IRS return.
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California allows a lower deduction – so let your program
use the lower state deduction.

Then, keep a print out of the California depreciation schedule in a permanent file. Each year, when you get your new tax software, make sure that it rolls the California depreciation over into the new software. If not, enter it by hand.

For the next several years, you will have a depreciation deduction on your state return for this laptop, while your IRS deduction for it will be -0-.

If you look at your software, you’ll see it has three depreciation columns or sections for input – the Federal, the AMT (alternative minimum tax) and the state. They may all have different balances and still be correct.

And remember, you’ll find answers to questions about depreciation and all kinds of tax issues, free. Where? Where else? At TaxMama.com

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