Countdown to Year-End: Written
Capitalization Policy Needed
this year with a “bang” by ensuring your business is able to
take advantage of the de minimis safe harbor outlined in the
tangible property repair regulations. Our
October CRI e-newsletter featured the article
Final Tangible Property Repair Regulations Take Shape,
which covers these newly published IRS regulations that provide
a framework for when capital expenditures must be capitalized
and when they can be expensed. One provision is the de minimis
safe harbor, which allows taxpayers to expense certain items
that would otherwise be subject to capitalization and
depreciation rules. These rules are generally applicable for tax
years beginning on or after January 1, 2014. This date leaves
some businesses thinking that immediate action is not required
before year-end, but the caveat is that a written capitalization
policy must be implemented in 2013 in order to take advantage of
the de minimis safe harbor.
How do the de minimis safe harbor rules work?
The new de minimis safe harbor rules allow a manageable per-item
or per-invoice limit on what must be capitalized. Taxpayers with
an applicable financial statement (i.e. financial statement
filed with the SEC, audited financial statement from a CPA, or
any other statement that is required to be provided to a federal
or state government agency) may deduct items with a cost of less
than $5,000 per invoice—or per item as substantiated by an
invoice. Smaller taxpayers without an applicable financial
statement can still expense items, but their threshold is set at
a lower $500 per item or invoice.
The respective $5,000 and $500 limits are all or nothing; if a
small business without an applicable financial statement buys a
computer for $501, then no part of that computer can be expensed
under the de minimis safe harbor.
Also keep in mind that any additional costs (such as delivery or
installation fees) that are included in the same invoice must be
a part of the threshold analysis. However, if these additional
costs are separately invoiced, then they don't have to be
included in the dollar limitations. Therefore, buyers ordering
an item that will be close to the $5,000 or $500 limit may want
to request a separate vendor invoice for any additional charges.
There is one stipulation that applies to both large and small
businesses: in order to take advantage of these de minimis
limits, the business must have related accounting procedures in
effect as of the beginning of the tax
year. In other words, if the business hopes to expense items
under the $5,000 or $500 levels for 2014, then it needs to have
a written capitalization policy in effect before
January 1, 2014.
Enlist the help of CRI’s dynamite team.
If you've never adopted a formal capitalization policy or
haven't looked at your legacy capitalization policy recently,
then you may not be able utilize the safe harbor rules unless
you take action before year-end. And waiting until 2014 to adopt
this policy means waiting until 2015 to apply the de minimis
expensing for tax purposes. Take advantage of this opportunity.
tax CPAs are ready and willing to answer