If you recently discovered an error in your depreciation calculations, don’t panic. In fact, you might be surprised to learn that this oversight could actually result in a sizable tax benefit, thanks to how the IRS handles certain accounting changes.

Here’s what you need to know and why this correction could be more of an opportunity than a setback.

What Happened?

In simple terms, you missed some allowable depreciation deductions in prior tax years. This means your business didn’t fully claim the tax savings it was entitled to.

The good news? This can be fixed without triggering penalties or expensive user fees.

Why This Is Good News

1. No IRS User Fees

Some accounting changes can cost businesses thousands in IRS user fees anywhere from $2,000 to $10,000, depending on the complexity of the correction.

However, depreciation corrections like yours qualify as an automatic change. That means no user fee is required, and the process is more straightforward.

2. You Get a One-Time Tax Deduction

Because you underclaimed depreciation in the past, the IRS allows you to make what’s called a Section 481(a) adjustment.

In your case, it will be a negative adjustment which is a good thing. It means the IRS will let you deduct all the missed depreciation in one lump sum in the year you make the correction.

This could reduce your taxable income significantly and lower your overall tax bill for that year.

3. You Can Choose the Timing Strategically

Here’s where tax planning really comes in. We can work together to decide which tax year makes the most sense for implementing the correction based on your income, other deductions, and overall tax position.

In some cases, timing the adjustment well can lead to thousands of dollars in savings.

What Happens Next?

To correct the depreciation error, we’ll prepare and file the necessary paperwork with the IRS:

• Form 3115 (Change in Accounting Method)  an eight-page form that details the change and outlines your new depreciation method.
  
• Section 481(a) Adjustment Worksheet  a brief attachment that calculates the total missed depreciation and explains the nature of the adjustment.
  

We’ll include one copy of this with your tax return and file a second copy with the IRS’s national office. As always, our instructions will be clear and easy to follow.

Mistakes happen even with depreciation. But the IRS offers well-defined, taxpayer-friendly ways to correct them. With the right planning, this missed deduction could become a major tax break.

If you’re ready to move forward or want to discuss the timing of your adjustment, let’s talk. We’re happy to schedule a quick phone call or meet in person whatever’s most convenient for you.