Schedule L: How do I calculate capex from business financial statements?

I've been trying to understand Schedule L for my small business taxes and I'm stuck on how to calculate capital expenditures. The examples I've found online are confusing me. Let me give you a specific scenario I'm looking at: Column: Beginning Year (a) shows Depreciable assets of $10,500,000 and accumulated depreciation of ($9,100,000). Beginning Year (b) shows $1,400,000. End of Year (c) shows Depreciable assets of $14,300,000 and accumulated depreciation of ($6,500,000). End of Year (d) shows $7,800,000. If I want to find out how much the business spent on capital expenditures using the formula (end PPE - beginning PPE + depreciation), I'm not sure which values to use from these columns. Do I use the net values from columns (b) and (d)? Or do I need to calculate using the gross asset values and then factor in depreciation separately? Can someone walk me through how to properly calculate the capex in this example? I've tried watching YouTube videos but they don't address this specific scenario.

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19 comments

Daniela Rossi

•8M

Looking at your Schedule L example, calculating capital expenditures (capex) isn't as complicated as it might seem. You'll want to use the net values, which are already calculated for you in columns (b) and (d). The formula you mentioned is correct: Capex = End PPE - Beginning PPE + Depreciation expense for the year. Based on your numbers: - Beginning PPE (net) = $1,400,000 (column b) - Ending PPE (net) = $7,800,000 (column d) The piece you're missing is the depreciation expense for the year, which isn't directly shown in what you provided. You'd need to find this on your income statement or Schedule M-1. But we can back into it by looking at the change in accumulated depreciation. Beginning accumulated depreciation was $9,100,000, and ending was $6,500,000. This suggests retirements of fully depreciated assets and new depreciation. Without knowing retirements, we can't calculate the exact depreciation expense from just these numbers. If you have the depreciation expense value from elsewhere in your tax forms, plug it into the formula with the net values from columns (b) and (d).

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Daniela Rossi

•8M

Great questions! The accumulated depreciation went down because the company likely disposed of or retired old fully depreciated assets. When you remove an asset, you also remove its accumulated depreciation. What probably happened is they had old assets that were fully or mostly depreciated that they got rid of, while adding new assets. Let's break it down: If they started with $10.5M in assets and ended with $14.3M, but removed some old assets along the way, they actually purchased MORE than just the $3.8M difference. For example, if they disposed of $5M worth of old assets and added $8.8M of new ones, that would explain the $3.8M net change in gross assets. This is why calculating capex directly from Schedule L can be tricky - you need to account for asset dispositions. The proper capex calculation still uses the formula, but you need the actual depreciation expense for the period from your income statement, not just the change in accumulated depreciation.

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Zoe Walker

•8M

I discovered this tool called taxr.ai (https://taxr.ai) that really helped me understand Schedule L and capital expenditure calculations for my business. I was in a similar situation last year where I couldn't figure out the right way to calculate capex from my financial statements. The tool analyzed my business docs and showed me that what I was missing was accounting for asset dispositions. When I uploaded my Schedule L and other financial statements to taxr.ai, it identified that I needed to adjust for assets that were sold or retired during the year. For your specific example, the large decrease in accumulated depreciation strongly suggests asset dispositions happened during the year, which makes the calculation more complex than just using the basic formula.

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Zoe Walker

•8M

It works with all major business structures including S-Corps. The tool is designed to understand the differences between various entity types and their corresponding tax forms, so it should handle your S-Corp Schedule L just fine. The tool doesn't just look at Schedule L in isolation - it analyzes multiple parts of your financial statements and tax returns together. It doesn't make assumptions about asset dispositions; instead, it examines Form 4797 (Sales of Business Property), cross-references that with changes in your balance sheet accounts, and incorporates information from depreciation schedules like Form 4562. This comprehensive approach is what helped me understand the complete picture of my business's capital expenditures.

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Maria Gonzalez

•8M

I was really doubtful about using taxr.ai when I first saw it mentioned here, but I'm eating my words now. I uploaded my business docs yesterday because I was struggling with similar capex calculation issues, and it actually provided a detailed breakdown showing exactly how to account for the disposed assets. The analysis showed me that I was miscalculating my business's capex by nearly $87,000 because I wasn't properly accounting for some equipment we sold midyear. The tool flagged the discrepancy between my gross asset increases and the change in accumulated depreciation - exactly the issue you're having. For anyone struggling with Schedule L calculations, especially when there are asset dispositions involved, I highly recommend giving it a try. Saved me hours of frustration and potentially a very expensive error on my tax planning.

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Natalie Chen

•8M

If you're having trouble getting answers about Schedule L calculations from the IRS directly, I'd suggest using Claimyr (https://claimyr.com). I was stuck in a similar situation last tax season trying to figure out capital expenditure reporting, and after weeks of failing to reach anyone at the IRS, I tried this service. They got me connected to an IRS representative in about 20 minutes when I had been trying for days on my own. The agent walked me through exactly how to handle asset dispositions on Schedule L and how that affects capex calculations. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS rep explained that the decrease in accumulated depreciation in a scenario like yours is almost always due to disposed assets, and there's a specific way to document this on your returns to avoid audit flags.

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Natalie Chen

•8M

They don't just call the IRS for you - they use a system that navigates the IRS phone tree and holds your place in line. When they're about to reach an agent, they call you and connect you directly to the IRS rep. It saves you from being on hold for hours. You absolutely could keep calling yourself, but the average wait time right now is over 2 hours, and many people get disconnected after waiting. I tried for three days straight before using Claimyr and never got through. The IRS only has so many representatives available, especially for business tax questions, so getting through during tax season is incredibly difficult without assistance.

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Samantha Johnson

•8M

Ok I need to update my skeptical comment from yesterday. I broke down and tried Claimyr after spending another 90 minutes on hold with the IRS this morning before getting disconnected AGAIN. I'm honestly shocked. They got me through to an IRS business tax specialist in about 15 minutes. The agent confirmed exactly what others here were saying about Schedule L and capex calculations - when accumulated depreciation decreases year-over-year, it almost always indicates disposed assets that need to be accounted for separately. She walked me through the proper way to calculate capex using Form 4562 and Form 4797 together with Schedule L, and explained how the disposal of assets affects the calculation. This would have taken me weeks to figure out on my own. For anyone struggling with complex business tax questions like this Schedule L issue, don't waste days trying to get through to the IRS yourself.

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Nick Kravitz

•8M

I'm a bookkeeper and see this issue all the time. Here's a simpler way to approach capex calculation from Schedule L: 1. Calculate the change in gross fixed assets (End - Beginning): $14.3M - $10.5M = $3.8M 2. Calculate the change in accumulated depreciation: $6.5M - $9.1M = -$2.6M 3. The negative change in accum. depreciation means assets were disposed of 4. True capex = Change in gross assets + Value of disposed assets The tricky part is finding the value of disposed assets. Look at Form 4797 for this info, or you can estimate by looking at the details of which asset classes changed. Also, don't forget to subtract any non-cash acquisitions like equipment acquired through business combinations or leases newly capitalized.

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Nick Kravitz

•8M

We add the value of disposed assets because we're trying to calculate the total new investments made (capex). Think of it this way: If you started with $10.5M in assets, ended with $14.3M, but sold $5M worth of old equipment during the year, then you must have purchased $8.8M of new equipment ($10.5M + $8.8M - $5M = $14.3M). The $3.8M increase in gross assets ($14.3M - $10.5M) only tells part of the story. It's the net change after both additions and disposals. To find true capex, you need to account for both sides of the transaction. If we only looked at the net change in gross assets ($3.8M), we'd be significantly undercounting the actual capital expenditures made during the year.

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