Big4 Beginner

Well according to the date on this post, it's been almost a month since I've posted. I wish I had an excuse for not posting, but I really don't. I've thought of things that would've been cool to write about, but just never got around to doing it. So now is the time.

I started my career at a Big4 firm last week. For any of you wondering, the first week is filled with administrative tasks and self study exercises. I had interned at this company for the last two summers so I was pretty aware of what to expect. All in all, it was a decent first week and entirely exhausting. It's always nice getting taken out to lunch by your your superiors. After sleeping in until noon everyday before starting work, waking up at 5:45 every morning was a definite change of pace, but we all adjust. I tried to settle into my cubicle realizing that many hours will be spent in it over the next few years. Overall, I was content to begin earning my first paycheck as a tax professional.

Since I don't have anything specific to write about in this post, I figure I'll just write about things that I'm working on.

1. Bonus Depreciation

From the taxalmanac:

In March 2002, the Job Creation and Worker Assistance Act (“JCWAA”)(P.L. 107-147) was signed into law. The foundation of this new legislation was the allowance of “bonus” depreciation (IRC Sec. 168(k)). The new “bonus” depreciation provisions provide a special depreciation allowance for qualified properties placed in service after September 10, 2001 and before January 1, 2005. These provisions allow 30% of the asset's cost to be immediately deducted in the initial year the property is placed in service.

Qualified property which is eligible for “bonus” depreciation must have a recovery period of 20 years or less and can not be considered IRC Sec. 197 computer software.

In May 2003, the Jobs and Growth Tax Relief Reconciliation Act (“JGTRRA”)(P.L. 108-27) was enacted. This act modified the “bonus” depreciation provisions contained in the JCWAA by increasing the deduction from 30% to 50% of the assets cost for property acquired and placed into service after May 5, 2003, and before January 1,2005. This modified provision can be applied to all property, which qualifies for the 30% “bonus” depreciation deduction.

State conformity to the federal “bonus” depreciation provisions provided by the JCWAA and JGTRRA is a major concern for taxpayers, as many states have decoupled in whole or part from these federal tax acts.

For state tax purposes, many states "decoupled" from the Federal bonus depreciation. Essentially, they said "you ain't taken all that extra depreciation at the beginning on your state tax return son". Since the total depreciation will be equal when the asset reaches the end of its useful life, the only issue is a timing difference. The amount of depreciation taken on the Federal return and on the State return are different. Since most state tax returns begin with Federal Taxable Income as the starting point, we have to make additions or subtractions to arrive at State Taxable Income. In the early years, when federal depreciation is greater than state depreciation (Increase Depreciation-->Reduce FTI), we have to make additions to Fed Tax Income to arrive at State Taxable Income. Since in the end depreciation must be equal under both methods, we have to take less depreciation on the Federal return in later years (Decrease Depreciation-->Increase FTI). Since depreciation will now be greater on the State return, we make a subtraction from Federal Taxable Income to arrive at State Taxable Income.

Easy as pie.