How to Prepare Form 4562 For a Sole Proprietorship

If you are a Sole Proprietor who purchased business equipment, and you’d like to deduct that purchase on your income tax return without breaking into a sweat, this article is for you. I’m going to show you how to properly fill out Form 4562 without getting bogged down in those complex depreciation calculations, and you’ll get to deduct the full price of your equipment in the year you bought it.

There are four conditions that must be met in order for this article to apply to your situation. First, you must have purchased less than $ 250,000 worth of business equipment. Second, this equipment must be personal property (such as computers, printers, other office machinery like a phone or fax machine, office furniture, or any other type of business machinery) not real estate (such as land or a commercial building such as an office building, storefront property or warehouse). Third, you had a profit in your business, and that profit amount is greater than the total purchase price of business equipment bought during the year. And fourth, these items are only used for business purposes. You didn’t buy anything that is used partly for business use and partly for personal use.

Now, you may be thinking, “Wow. Those are a lot of hoops to jump through.” But not really. This is really a very common situation. You have a business. And buy business equipment that is used solely in the business. And you are a small business owner, so we’re not talking about spending hundreds of thousands of dollars, even thousands of dollars. For example, you may have bought a new computer for $ 500 and a new printer for $ 200.

And that’s it. That’s a very simply situation and reporting those purchases on your income tax return should be a simple procedure. And guess what: it is!

Here’s all you have to do in the above scenario. Go to Form 4562 and put $ 700 on Line 2, which is labeled “Total cost of section 179 property placed in service.” Then go to Line 6 and put a brief description of these 2 items in column (a). You’d put “Computer” on the first line and “Printer” on the second line. Then go to Line 6, column (b) and put the purchase price (or “Cost”); so you’d put $ 500 on the first line and $ 200 on the second line. Then go to Line 6, column (c) and put the same amounts as column (b). Column (c) is labeled “Elected cost”.

Then go to Line 8 and put the total cost of both items, which is $ 700. Go to Line 9 and again put $ 700. Then go to Line 12 and again put $ 700. Then all the way down to Line 22 and again put $ 700. And that’s it. You are done with Form 4562.

Notice that we skipped several lines in Part I, and we also skipped all the lines in Part II and Part III. Don’t worry about them. Since you met the four conditions listed above, you don’t have to put anything on those lines.

Now there is one more thing you must do. Take the amount from Line 22 ($ 700) and transfer it to Schedule C, Line 13, which is where you actually get to take the deduction for the computer and printer.

One more tip: what if you bought more than two items of business equipment? Simply list all the items on a separate schedule, showing the description, cost and elected cost, exactly as described above. Take the total from this schedule and put that on Line 6, columns (b) and (c), and put the words “See attached schedule” on Line 6, column (a).

Looking for more small business tax tips? For a free copy of the 25-page Special Report “How to Instantly Double Your Deductions” visit Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.