Nonincidental supplies

[ttbtaxes]

Nonincidental supplies must be deducted in the year used not paid for. Question....the average business today uses computers and printers. The average client will buy laser cartridges during the year that cost less than $200 each. The average client doesn't "inventory them" but buys them when they are running low just like they do with pens, paper and paper clips.

My understanding is that the laser cartridges would be considered nonincidental and only deducted when used. Is that correct?

[TAX4US]

Would this not be a bookkeeping nightmare since there is no inventory kept. However I keep thinking cash basis taxpayer deducts when paid. What are you going to do? HELP What is the definition of 'NonIncidental Supplies".

[TXEA]

With the De minimis safe harbor election, they get deducted unless over $500 (without AFS).

[TaxGuyBill]

You have it reversed. If no inventory ("record of consumption") is kept, they are "incidental", and are deducted when you buy them.


§162-3(a)(2): Incidental materials and supplies. Amounts paid to acquire or produce incidental materials and supplies (as defined in paragraph (c) of this section) that are carried on hand and for which no record of consumption is kept or of which physical inventories at the beginning and end of the taxable year are not taken, are deductible in the taxable year in which these amounts are paid, provided taxable income is clearly reflected.

http://www.ecfr.gov/cgi-bin/text-idx?SID=12e4ba7bb863c60017c9e3a4e18bd90c&node=se26.2.1_1162_63&rgn=div8

[ttbtaxes]

Maybe I'm wrong but it appears that the toner cartridges would be a nonincidental supply. The regulations at 1.162-3(h), Example 9, shows the toner cartridges not deductible until used.

However, as TXEA points out the DMSH election will function to allow the cartridges to be deducted when paid. I wasn't sure whether nonincidentals were included with the DMSH but Reg. 1.263(a)-1(f)(3)(ii) says that if the DMSH election is made, it must apply to all materials and supplies under 1.162-3.

[Burke]

As you mention, most TP's get toner cartridges when they need them, although I will stock up for the coming tax year in Dec, so I don't have to stop and run to the store when one runs out. I also do the same thing with paper, and all the other supplies I will need for the upcoming tax year. This may include client folders, tax envelopes, etc. I order these in bulk, sometimes enough to last 2 years. I do not keep an inventory. Perhaps very large firms like HRB do. I am relying with 162-3(a)(2) and deduct when purchased.

[TXEA]

DMSH applies to all materials and supplies whether incidental or non-incidental........Incidentally, does anyone have a client that inventories their supplies?

[Gretel]

Yes, I do. Packaging materials for small manufacturer.

[Gary2]

Maybe I'm wrong but it appears that the toner cartridges would be a nonincidental supply. The regulations at 1.162-3(h), Example 9, shows the toner cartridges not deductible until used.

I don't read that example as saying they must be treated as non-incidental. I read it as saying if they are treated as non-incidental, you use the per-unit price and not the bulk purchase price to apply the regs.

[TaxGuyBill]

I agree with Gary. The beginning says that assume the items are non-incidental (they have 'records of consumption of the items), but are not defining those items NEED to be non-incidental.

[ttbtaxes]

Thanks everyone!