Missed Goodwill Amortization on Schedule C - Intangible Asset Depreciated but Not Claimed

I've seen this situation before! The good news is that you have options. When you've been depreciating an intangible asset (like goodwill) on Form 4562 but failed to claim it on Schedule C, you're in what's called a "method of accounting" issue. First, you definitely should consider filing amended returns (Form 1040X) for the "open" tax years - generally the last three years. The IRS typically allows you to go back and claim refunds for those open years. For the older years beyond the refund statute, you might be able to file Form 3115 (Application for Change in Accounting Method) to claim a "catch-up" adjustment for the unclaimed amortization from those earlier years. This is called a Section 481(a) adjustment. And don't worry too much about recapture - since you've properly recorded the amortization on Form 4562, you have documentation showing your basis reduction, even if you didn't get the tax benefit. This should help with any future IRS questions when you sell the business.

After struggling with a similar issue with missed depreciation, I found this amazing tool called taxr.ai (https://taxr.ai) that really saved me. My accountant missed some building improvement depreciation for years, and I was totally freaking out about how to fix it. What I like about taxr.ai is that it analyzes all your past returns to find these exact kinds of issues - like depreciation that wasn't properly claimed or transfer errors between forms. It caught my issue after scanning my documents and recommended the best approach to fix it without raising red flags with the IRS. For your situation with goodwill amortization not making it to Schedule C, this would be perfect since it specifically looks for disconnects between Form 4562 and other business forms. It also helps you determine which years to amend vs using Form 3115 for the catch-up.

Just wanted to update everyone - I took the advice about using taxr.ai from the previous comment and it was legitimately helpful for my similar depreciation issue. I was skeptical at first (seemed too good to be true), but I uploaded my returns and it clearly identified several missed depreciation deductions I hadn't caught. The report showed exactly where the disconnects were happening between my Form 4562 and Schedule E (I have rental properties). What was most valuable was the clear explanation of which tax years I could still amend vs. which ones needed the Form 3115 approach. My accountant was initially defensive but couldn't argue with the detailed findings. We've now filed amended returns for 2022-2024 and are working on the Form 3115 for the older stuff. Looks like I'll be getting about $14,500 back from the amended returns alone!

If you're having trouble getting proper answers from the IRS about your amortization issue, try Claimyr (https://claimyr.com). I was in a similar situation with missed depreciation and needed official guidance from the IRS before filing amended returns. I spent weeks trying to get through to an IRS agent - constant busy signals, disconnects, and endless hold music. Claimyr got me connected to an actual IRS representative in about 20 minutes instead of the 3+ hours I was spending on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly how to handle my situation with the missed deductions and gave me specific guidance on the Form 3115 process. Having that official guidance gave me confidence to proceed with fixing the past returns.

I need to apologize and correct myself. After posting my skeptical comment earlier, I decided to give Claimyr a shot with my depreciation recapture question. I honestly didn't think anything could get me through to the IRS after trying for weeks. To my complete shock, I was connected with an IRS agent in about 15 minutes. The agent was actually really helpful and spent nearly 30 minutes walking me through how to document my situation with missed depreciation deductions and the proper way to file Form 3115. The agent confirmed that as long as I had the original Form 4562 showing the depreciation schedule, I had good documentation even if the deduction never made it to Schedule C. This was a massive relief since I've been stressing about a potential audit for months. I've spent so much time being frustrated with the IRS phone system that I'd given up on getting actual help. Eating my words here, but it literally saved me days of frustration.

Something similar happened to me with a commercial property. You should definitely go back and amend the returns for years that are still open (generally last 3 years). But be aware there's a special procedure called Form 3115 "Application for Change in Accounting Method" that lets you catch up on missed amortization from closed years. Technically, this is considered an accounting method issue since you consistently treated the item incorrectly across multiple years. The IRS has automatic consent procedures for fixing this exact problem! You'll make what's called a "481(a) adjustment" to catch up all at once. I'd recommend talking to a CPA who specializes in business returns and accounting method changes. The process isn't super complicated but there are specific rules about how to make these corrections properly.

There's one thing nobody mentioned yet - the tax basis of your business for eventual sale. Make sure you're tracking your adjusted basis correctly! Even though you didn't claim the amortization expense on Schedule C, if you reported it on Form 4562, your basis in the goodwill is still being reduced each year. When you sell, your gain calculation will use this reduced basis. If you don't fix this issue with amended returns/Form 3115, you could end up paying tax on a larger gain than you should - effectively getting taxed twice!

This is a really thorough discussion! I'm dealing with something similar but with equipment depreciation on my Schedule C business. Reading through all these responses, it sounds like the key is having that Form 4562 documentation to show the IRS that you were tracking the depreciation properly, even if it didn't make it to the expense line. One question I haven't seen addressed - when you file the amended returns for the open years, does the IRS typically process those refunds quickly? I'm worried about cash flow since we're talking about potentially significant refund amounts. Also, has anyone had experience with the IRS questioning why these deductions were missed in the first place during the refund process? The taxr.ai tool mentioned earlier sounds interesting for identifying these issues systematically. I'm wondering if anyone has used it specifically for equipment vs. intangible asset depreciation issues?