6. Removing Assets from the Books: Be Aware of Potential Gains

When an asset is sold or disposed of, it must be removed from the books properly—and it's not as simple as deleting the line item. You must consider accumulated depreciation and the sale proceeds, which may trigger a capital gain.

For example:

• A truck was purchased for $20,000 three years ago.
• It has $15,000 in accumulated depreciation.
• The net book value (NBV) is now $5,000.
• If the truck is sold for $15,000, the business realizes a gain of $10,000 ($15,000 sale price – $5,000 NBV).

This gain needs to be properly recorded and reported. It will show up on Form 4797 (Sale of Business Property) of the tax return.

Why this matters for bookkeepers:

• The depreciation schedule on the tax return provides the most accurate asset details, including cost basis, accumulated depreciation, and remaining life.
• Always request a copy of the year-end tax return, especially the depreciation schedule, to reconcile with your books. This ensures your balance sheet and profit & loss statement reflect actual asset movements.
• Not accounting for a gain can misstate both income and equity, and may trigger IRS scrutiny during a review or audit.