Adjustment of depreciation write-offs - how to do it?

Fixed assets belonging to an enterprise are usually depreciated, and thanks to the depreciation write-offs made, entrepreneurs have a chance to increase tax deductible costs. However, what should be done in the event that the depreciation write-offs have been underestimated as a result of an error? The answer to this question is the adjustment of depreciation charges.

Correction of depreciation write-offs and the date of its making

In the event that the error consisting in the understatement of depreciation write-offs was not noticed quickly enough, the entrepreneur should correct the tax returns from previous years. The adjustment of depreciation write-offs cannot be made once in the tax year in which such an error was discovered.

The method of making corrections in declarations from previous years

The provisions of the Tax Code indicate that taxpayers, remitters and collectors have the right to correct an already submitted tax declaration, unless separate regulations provide otherwise. It should not be difficult to make - it is enough to submit a corrective declaration and attach to it a written justification explaining the reasons for the correction.

Limitation of tax liabilities and the adjustment of depreciation write-offs

In the context of submitting the adjustment of depreciation write-offs, the provisions on the statute of limitations on tax liabilities are particularly important. They say that the tax liability expires 5 years from the end of the calendar year in which the tax payment deadline expired. These regulations should be applied to understated depreciation, so if the incorrect write-downs relate to a tax liability that has expired, they cannot be corrected. If, however, we are dealing with incorrect write-offs related to the still current tax liabilities, the taxpayer has the opportunity to make an adjustment.

Adjustment of depreciation write-offs for balance sheet purposes

The Accounting Act specifies the entrepreneur's obligations related to the depreciation of fixed assets: on the date of acceptance of the fixed asset for use, the entrepreneur is obliged to determine the rate (period) and the method of its depreciation. The adopted depreciation rates should also be verified from time to time - thanks to this, it will be easier to make possible adjustments to depreciation write-offs in the following years.

For balance sheet purposes, depreciation write-offs that were lowered in previous years should be corrected by increasing the depreciation rates in subsequent financial years.

Thus, contrary to the provisions of the Income Tax Act, for balance sheet purposes, the underestimated depreciation should be corrected in future periods - those after the discovery of an error.