The IRS indicates that... "Tangible property regulations apply to anyone who pays or incurs amounts to acquire, produce, or improve tangible real or personal property. These regulations apply to corporations, S corporations, partnerships, LLC's, and individuals filing a Form 1040 with Schedule C, E, or F. The final regulations affect you if you incur amounts to acquire, produce or improve tangible real or personal property in carrying on your trades or businesses.
"you may elect to apply a de minimis safe harbor to amounts paid to acquire or produce tangible property to the extent such amounts are deducted by you for financial accounting purposes or in keeping your books and records".
"you are not required to have written accounting procedures; however, you must expense amounts on your books or records or Applicable Financial Statements (AFS) for the taxable year in accordance with a consistent accounting procedure or policy existing at the beginning of the taxable year."
This deminimis safe harbor election is for "Small Taxpayers". Average sales less than $10m, own or lease building property with a basis under $1m and total repairs, maintenance, improvements, doesn't exceed the lesser of 2% of the basis or $10k. The $2,500 limit also assumes you do not have an Applicable Financial Statement (AFS).
If in 2016, you wish to expense items purchased up to $2500 (vs the lower $200 materials & supplies limit) be sure to enact an "accounting procedure" (in writing is best) every year on January 1st. This de minimis limit changed from $500 to $2500 with IRS Notice 2015-82
s a m p l e
Accounting Procedure to
"Treat as an expense for both tax and non-tax purposes
* amounts paid for property costing less than a certain dollar amount (as described below, up to $2500) or
* amounts paid for property with an economic useful life [as defined in Reg. 1.162-3(c)(3)] of 12 months or less and
* amounts paid during the taxable year as an expense for book purposes in accordance with those procedures and
* the amount paid for the property does not exceed $2500 per item"
Note: that procedure doesn't apply to inventory purchases, land, rotable spare parts.
If no accounting procedure exists (written or unwritten) - then you may be able to still treat each item purchased under $200 as "materials & supplies" or continue to expense equipment & software using IRS Code Section 179 (restrictions apply).
Please see these IRS links for detailed information, requirements, and limitations.
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Tangible...
https://www.irs.gov/pub/irs-drop/n-15-82.pdf
Just let me know if you have questions & have a great new year!
GAR
Garland Taylor CPA, Pres.
Garland R Taylor CPA PC
(503) 287-5584
(503) 287-6370 fax
cpa@garlandtaylor.com
www.garlandtaylor.com
Sign up for our newsletter:
Categories
Blog Posts
