Small Business Tax Compliance

Schedule C • Asset Amortization • Tax Credit Basis Adjustments

Project Context

Client Scenario:

"MBJ Appraisals" – A sole proprietorship established mid-year by a property appraiser transitioning from W-2 employment.

The Objective:

To file a compliant tax return that maximizes first-year deductions while navigating complex capitalization rules for mixed-use assets and pre-opening expenditures.

My Role:

Independent Tax Preparer responsible for source document analysis, IRC interpretation, and final return preparation.

Regulatory & Compliance Challenges

The engagement presented three specific technical hurdles:

Startup Cost Capitalization (IRC §195): The business incurred significant marketing and feasibility costs before officially opening, triggering specific amortization rules.
Mixed-Use Listed Property: An SUV was placed in service in Q4 with 81.7% business use, requiring a comparative analysis between Standard Mileage Rate and Actual Expense Method.
Basis Interference: The installation of a $35,000 solar system created a conflict between the Residential Clean Energy Credit and the depreciable basis of the home office.

Strategic Execution

1. Amortization Election

Identified $9,000 in pre-opening expenses. Elected to expense the initial $5,000 immediately under the current year limits and amortize the remaining balance over 180 months (15 years) to ensure long-term recoverability.

2. Basis Reconciliation (Form 5695)

Under IRC §50(c), a taxpayer cannot depreciate the portion of an asset covered by a tax credit. I performed a manual basis adjustment in the asset manager to exclude the credited amount of the solar system, preventing "double dipping" on the Home Office depreciation schedule.

3. Data Analysis & Selection

Performed a side-by-side simulation of vehicle deduction methods. Determined that the Actual Expense Method (Operating Costs + MACRS Depreciation) yielded a significantly higher deduction than the Standard Mileage Rate due to the high cost basis of the vehicle.

Supporting Documentation

Outcome

Filed a fully compliant return including Forms 1040, Schedule C, 4562 (Depreciation), 8829 (Home Office), and 5695 (Residential Energy Credits).
Established a clear depreciation schedule for the SUV and Home Office to ensure consistency in future tax years.
Applied the De Minimis Safe Harbor election to expense small technology assets immediately.

Bring Precision to Your Financial Team

Leveraging nine years of tax compliance experience and formal accounting training. Currently open to corporate accounting internships and full-time opportunities in the Central Valley.

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