Just when you thought it was safe to say “amen” to your tax returns for another year, Congress and the IRS have given you several good reasons to instead say “amend.”
The IRS recently allowed all truck and trailer owners to use a long-sought method of accounting for replacement tires. Revenue Procedure 2002-27 says that taxpayers may deduct the full cost of any tire other than the first set that was installed on a vehicle at the time the taxpayer acquired it. The first set must be depreciated over the same useful life as the vehicle, even if the tires are bought separately.
Previously, some IRS examiners had rejected expensing and instead required taxpayers to deduct replacement tires over longer periods. The new revenue procedure should reduce inconsistency in IRS treatment of different fleets and simplify recordkeeping for any fleet choosing to expense replacements.
Better yet, taxpayers may elect to have the revenue procedure apply to original and replacement tires purchased in the taxable year ending Dec. 31, 2001, or later, even if a tax return has already been filed for that year. And taxpayers currently under examination, appeals or in Tax Court will not longer be challenged on this issue. The method does not apply to tires first used before that taxable year, however.
Congress provided two other reasons for some taxpayers to file amended returns when it suddenly passed, and the President signed, a “stimulus” bill in early March. First, a provision popularly called “bonus depreciation” allows taxpayers to expense 30% of the cost of trucks or equipment used for business that were acquired and placed in service after Sept. 10, 2001.
Taxpayers who have already filed returns for taxable years that include that period can file amended returns. The IRS web site, www.irs.gov, includes forms and instructions for claiming the bonus depreciation.
The remaining 70% of an asset's cost is depreciated under regular rules. For assets that are depreciated over five years, such as trucks and trailers, the amount deductible in the first year rises from 20% to 44% (30% plus 20% of the remaining 70%). For three-year assets, such as tractors, the first-year deduction rises from 33% to 53% (30% plus 33% of the remaining 70%).
The provision applies to assets acquired before Sept. 11, 2004 and placed in service by Dec. 31, 2004, unless Congress extends the expiration date. An extension is likely since the benefit will go away just weeks before an election day.
Congress also increased the time that a company can carry back losses. For taxable years ending in 2001 or 2002, a taxpayer may carry back its taxable losses for up to five years instead of two. Thus, a firm that had a loss in 2001 large enough to wipe out its tax liability for 1999 and 2000 can now carry its losses back to 1998 (and, if needed, 1997 and 1996).
The stimulus bill, formally known as the Job Creation and Worker Assistance Act, also re-instated several tax breaks that had expired or begun to be phased out, including credits for electric and alternative-fuel vehicles and fueling facilities.
One caution: Many states have not gone along with the federal changes, yet some require legislative action to adopt federal changes and the legislatures may already have adjourned for the year. In others, governors or key legislators have said they can't afford to grant the relief, at least not retroactively for 2001.
The bottom line: You may be tired of taxes. But sometimes it's worth changing a return. After all, one good return deserves another.