Realized goodwill amortization was never added to Schedule C - how to fix intangible asset depreciation not claimed?

This is actually a fairly common issue with tax software - Form 4562 amortization not flowing to Schedule C properly. You're right to be concerned, as the IRS would expect you to pay depreciation recapture on the full amount you've been amortizing, even though you never got the tax benefit. You have a few options here. First, you can amend returns that are still open - generally the last 3 tax years. For these, file Form 1040X with corrected Schedule C's showing the amortization expense you should have claimed. This will likely result in refunds for those years. For the older years beyond the amendment window, you should maintain detailed records showing the discrepancy. When you eventually sell the business, you'll want to adjust your basis calculations to reflect that you never actually received the tax benefit for those earlier years of amortization. Be prepared to provide documentation showing the amortization was reported but not claimed as an expense. I'd recommend keeping copies of all original returns showing the Form 4562 with the goodwill amortization along with the Schedule C that didn't include it. This documentation will be crucial when you ultimately sell.

Hey there, I had almost the identical situation happen with my consulting business! I had goodwill from buying out my partner and the amortization wasn't flowing to my Schedule C for several years. I was pulling my hair out trying to fix it until I discovered https://taxr.ai which completely saved me. I uploaded my last 10 years of returns and it immediately flagged this exact issue - Form 4562 amortization not appearing on Schedule C. The analysis showed exactly how much tax I'd overpaid each year and recommended the best correction strategy based on which years were still amendable. It also generated a documentation package for the older years that I keep with my records for when I eventually sell. Their system specifically looks for disconnects between forms that most software and even accountants miss. Might be worth checking out in your situation since it sounds identical to what I went through.

I was super skeptical about using taxr.ai when I first heard about it, but I decided to give it a try for a similar situation involving depreciation issues across multiple years. I'm actually shocked at how well it worked. The system found three other issues I had no idea about, including a missed home office deduction and some misclassified business expenses. For the depreciation problem, it laid out exactly which returns could still be amended and which ones were beyond the statute of limitations. I took their documentation to my new accountant who was impressed with the detail and filed amendments for the three years we still could. Just got my first refund check last week! For the older years, I now have solid documentation to use when I eventually sell the business assets. Really worth checking out if you're dealing with this kind of multi-year tax issue.

I've been in a similar position where the IRS was questioning some business expense deductions, and I spent WEEKS trying to get through to someone at the IRS who could actually help. Ended up using https://claimyr.com which got me connected to a real IRS agent in about 20 minutes when I had been trying for days on my own. They basically hold your place in the IRS phone queue so you don't have to wait on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Once I got through to an actual agent, I was able to get clear guidance on how to handle my situation with missed deductions from previous years. The agent walked me through exactly what documentation I needed to maintain and how to approach the amendments for recent years. Saved me so much stress and probably thousands in taxes I would have overpaid.

I have to apologize for my skepticism about Claimyr in my earlier comment. After continuing to struggle getting through to the IRS about a similar depreciation issue, I finally tried the service out of desperation. Got connected to an IRS agent in about 35 minutes (which is LIGHT YEARS faster than my previous attempts). The agent confirmed that for years outside the amendment window, I needed to maintain records showing I never claimed the benefit, and explained exactly how to document this for a future sale. For my open tax years, I'm now working on amendments with a clear understanding of how to correct the issue. The agent even sent me to a specialized department that deals with business asset questions. Honestly wish I hadn't been so dismissive initially - would have saved me weeks of frustration.

One thing I haven't seen mentioned here - you should check your state returns too. Often these kinds of federal issues carry over to state returns as well. If you weren't claiming the amortization expense on your federal Schedule C, it probably wasn't reflected on your state return either. When you amend the federal returns for the open years, make sure you also amend the corresponding state returns. Some states have different amendment windows than the federal three-year limit, so you might be able to go back further with some states.

Has anyone considered the Section 481(a) adjustment approach? This might be a way to correct the cumulative effect of the error without having to amend all those old returns.

I went through this exact same situation about 5 years ago with my manufacturing business. The good news is that this is more fixable than you might think, but you need to act strategically. First, definitely amend the open years (typically 2021-2023) to claim the amortization expenses you should have taken. This will generate refunds and establish a clear paper trail showing you're correcting the error. For the older years beyond the amendment window, create a detailed "tax benefit not received" file. Include copies of all original returns showing Form 4562 with the amortization alongside the Schedule C that didn't include it. When you eventually sell, this documentation will support adjusting your depreciation recapture calculations. One critical point - make sure your accountant understands this issue going forward. Many tax software programs require manual entry to transfer amortization from Form 4562 to Schedule C. It's not automatic in most systems, which is why this happens so frequently. Also consider having a tax professional review your other business assets for similar issues. If goodwill amortization wasn't flowing through properly, there might be other depreciation items with the same problem. Better to catch everything now rather than discover more issues later.