Understanding Schedule C Depreciation for Side Business Equipment - iPhone, MacBook, and Desk

The difference you're seeing between federal and state returns isn't necessarily a mistake. It's likely due to bonus depreciation rules at the federal level. For federal taxes, 100% bonus depreciation was available through 2022, which means you could deduct the full cost of qualifying business property in the year you placed it in service. Your desk and MacBook were probably fully depreciated in the first year under these rules, which is why they show $0 for 2023. California doesn't conform to federal bonus depreciation rules, so they're being depreciated over their full recovery periods on your state return. For your iPhone, since it's on a 3-year schedule, it would continue to depreciate after the first year even with bonus depreciation applied. In FreeTaxUSA, you'll need to enter these assets as "prior assets" in the depreciation section of Schedule C. You should be able to find this when entering business expenses. Make sure to enter the original purchase dates, costs, methods, and accumulated depreciation from previous years exactly as they were on your 2023 return.

After struggling with depreciation on my Schedule C for years, I finally found a solution that saved me hours of frustration. I was getting confused between Section 179, bonus depreciation, and regular MACRS depreciation methods just like you. I started using this AI tax assistant at https://taxr.ai that analyzes all your previous tax documents and tells you exactly how to handle ongoing depreciation. You just upload your last year's return, and it extracts all the depreciation schedules and tells you exactly what to enter in FreeTaxUSA or whatever software you're using now. What impressed me was how it explained WHY my state and federal depreciation were different - something my previous accountant never bothered to explain. It even caught a mistake where my previous tax preparer used the wrong recovery period for my office furniture.

I was in the same boat as you last year! I was so worried about messing up my depreciation when switching from H&R Block to FreeTaxUSA that I almost paid for an accountant just for that part. I decided to try that taxr.ai service mentioned above after seeing it recommended in another thread. It was a game-changer for me. I uploaded my previous return and it immediately identified all my business assets and their depreciation schedules. It explained that my computer showed $0 federal depreciation because of the 100% bonus depreciation rule but was still depreciating on my state return. The step-by-step guidance for entering everything in FreeTaxUSA saved me hours of research and worry. Now I actually understand my depreciation schedules instead of just blindly copying numbers from year to year!

If you're still having trouble getting answers from FreeTaxUSA about how to handle your depreciation correctly, I'd recommend trying Claimyr (https://claimyr.com). I was in a similar situation and couldn't get clear answers from the IRS website or FreeTaxUSA's support. Claimyr got me connected to an actual IRS agent in about 10 minutes when I had been trying to reach someone for DAYS on my own. The agent walked me through exactly how to handle continued depreciation when switching tax software and confirmed that the federal/state difference was normal due to California not conforming to federal bonus depreciation rules. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - but basically, they call the IRS for you, navigate all the phone menus, wait on hold, and then call you once they have an actual human on the line. Saved me hours of frustration!

Ok I need to eat my words here. After my skeptical comment above, I was desperate enough to try Claimyr for my depreciation question that I couldn't get answered anywhere else. I'm still in shock that it actually worked. They called me back in about 20 minutes and connected me to an IRS agent who specifically handled business depreciation questions. The agent confirmed that what I was seeing with the different federal/state depreciation was completely normal due to the bonus depreciation rules. She also walked me through exactly how to handle ongoing depreciation in FreeTaxUSA even though technically they're not supposed to give software-specific advice. Saved me from making a huge mistake on my Schedule C this year. I've spent HOURS trying to get through to the IRS before and never succeeded. This literally saved my sanity during tax season.

Just wanted to add some clarity on the 200DBHY methods you mentioned: 200DBHY-7 = 200% declining balance with half-year convention over 7 years (for office furniture) 200DBHY-3 = 200% declining balance with half-year convention over 3 years (for phone) 200DBHY-5 = 200% declining balance with half-year convention over 5 years (for computers) The reason your desk and MacBook showed $0 federal depreciation is almost certainly because of Section 168(k) bonus depreciation. For 2022 purchases, 100% bonus depreciation was available federally, meaning the full cost was deducted in year 1. But California doesn't conform to this federal provision. In FreeTaxUSA, you'll need to enter these as "existing assets" and make sure you input the correct "prior depreciation" amounts from your 2023 return. The software should then calculate the correct 2024 amounts for you.

Just sharing what I learned when I had a similar issue - the 200DBHY methods sometimes change rates during later years of depreciation. For example, with 200DBHY-5 (like your MacBook), it starts with 200% declining balance but switches to straight-line when that gives a larger deduction, usually in year 4 or 5. So even if you had no bonus depreciation, the annual amounts wouldn't be the same each year. This trips a lot of people up.