Repair & Cap Regs: De Minimum Election

[Burke]

It is my understanding that the election can be made (say the $500 amt for non-AFAS taxpayers) for materials & supplies and certain repairs up to this amount, and that the expensed amt in question could still have a useful life of more than one year. Is that your understanding?

[TXEA]

I agree Burke, The amount could be for a laser printer that cost $450.00. It can be expensed with the election. In fact, it has to be expensed if you make the election.

[Kram BergGold]

Disagree Somewhat

There are stipulations in order to use the $500 safe harbor. The biggest hurdle is you have to have a plan in place before the start of the year that says you will always treat an under $500 item as a supply, or something to that effect. And it has to be entered in your books that way.

[WhiteOleander]

There are stipulations in order to use the $500 safe harbor. The biggest hurdle is you have to have a plan in place before the start of the year that says you will always treat an under $500 item as a supply, or something to that effect. And it has to be entered in your books that way.

Are these the same books my client keeps thrown up on the dashboard of his pick-up? Does the IRS really think most of these SE taxpayers actually keep books?

[TXEA]

There are stipulations in order to use the $500 safe harbor. The biggest hurdle is you have to have a plan in place before the start of the year that says you will always treat an under $500 item as a supply, or something to that effect. And it has to be entered in your books that way.

Point well taken Kram.....Luckily mine all have procedures in place, and I keep most of their books in house.

[Kram BergGold]

To White Oleander

That is my point. This is why I am just doing the $200 safe harbor which has no caveats. Then taking 179 on everything else. My solution will occaisionally have a small downside for some Schedule E rentals.

[WhiteOleander]

That is my point. This is why I am just doing the $200 safe harbor which has no caveats. Then taking 179 on everything else. My solution will occaisionally have a small downside for some Schedule E rentals.

Kram, my point was in no way directed to you personally. And I sincerely apologize if it appeared that way. I was just frustrated at the complexity the IRS continues to build into the tax code. After all is said and done, these new regulations will not help anything. They only make preparation more difficult. The average Joe or Josie will have no concept of these rules. I also don't believe that the majority of income is being skewed because someone is expensing rather than depreciating. I think the more complex the IRS makes the regulations, the more errors will be made. Not just by DIY, but experienced tax professionals. And the end result will be a huge mess.

[Burke]

Perhaps it was their intention to allow small business owners to write off certain de minimus expenses in one year rather than depreciating? If so, it could have been a simpler process than all this AFAS/non-AFAS nonsense. I found a sample statement form to be signed by the TP in my workbook for the VT Tax Seminar that states it very clearly. I think my rental clients will benefit the most from this, since they are prevented from using 179. The only reason they would use the $500 write-off is because the IRS changed the regulation, or made it law, or whatever you want to call it, not because the taxpayer intentionally made an accounting change of practice.

[Uncle Sam]

Repair & Cap Regs

Why can't we make it simple and use the Sec 179 threshhold each year to be the cap for depreciable equipment?

[nwtaxlady]

Section 179....

Section 179 is not allowed on rental property. So no easy way out on our rentals.

[Jiggers]

Section 179 is not allowed on rental property. So no easy way out on our rentals.

The 50% Bonus Depreciation on "New" property is allowed on rental property.

[nwtaxlady]

Yes, Jiggers

Yes, Jiggers, that is correct. I was referring to the section 179 expensing the whole amount. Can't do that on Rental property.

[Bees Knees]

There are stipulations in order to use the $500 safe harbor. The biggest hurdle is you have to have a plan in place before the start of the year that says you will always treat an under $500 item as a supply, or something to that effect. And it has to be entered in your books that way.

The requirement to have written accounting procedures at the beginning of the year applies to taxpayers with applicable financial statements [Reg. §1.263(a)-1(f)(1)(i)(B)], which applies to the $5,000 safe harbor amount. For taxpayers without applicable financial statements (those eligible for the $500 safe harbor), the regulations says: "The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes..." [Reg. §1.263(a)-1(f)(1)(ii)(B)]

The $5,000 rule says "...at the beginning of the taxable year written accounting procedures...." whereas the $500 rule says "...at the beginning of the taxable year accounting procedures..."

You will note one says "written" while the other does not. Now I do an awful lot of reading of the code, regulations, and court cases, and they never NEVER take short cuts. They always repeat themselves word for word over and over and over and over again. So by NOT repeating themselves in this case, that means the word "written" cannot be assumed to apply for the $500 safe harbor rule.

Now I don't want to suggest that it means anything, but a seminar speaker recently pointed out this difference and said something to the effect that this could mean we can make the election absent anything in writing ahead of time...assuming of course that we intended ahead of time to make the election, which by the way is done on the tax return by the filing deadline, including extensions. And since 99% of our clients do their books after the fact and usually throw everything into an expense account anyway, it's not a stretch to assume the client had intended their books to be done this way.

[Lion]

16 January 2015 Change!

On Friday, January 16th, the IRS issued new procedures (RP) in RP 2015-13 and RP 2015-14 covering automatic and non-automatic method filings that supersede the prior RPs that taxpayers had to follow. RP 2011-14, and its supplements RP 2014-16 and RP 2014-54, for automatic method changes is now superseded. RP 97-27 for non-automatic method or advance consent method filings is also superseded. The issuance of the replacements to RP 2011-14 and RP 97-27 solves several problems that the IRS had: (a) it updates the guidance of RP 2011-14 and RP 97-27 that had been outdated, (b ) it combines the automatic and non-automatic into one document, and (c ) it pulls the listing of automatic method changes into a separate document. Now future additions to the automatic methods will not require the replacement of the main method change revenue procedure.
Taxpayers should now use RP 2015-13 and RP 2015-14 to make accounting and non-automatic method changes. Rev. Proc. 2015-13 contains the rules taxpayers should follow to make automatic and non-automatic changes in methods of accounting, which are changes that do and do not require the IRS’s consent, including those related to the employment of the Tangible Property Regulations (TPRs). The new RP 2015-13 contains the procedures for applying for automatic changes in accounting method (which are those that do not require the IRS’s response for consent). Instead of RP 2015-13 being a complete document with an appendix of all of the automatic method numbers, the IRS issued Its sister issuance of Rev. Proc. 2015-14. RP 2015-14 contains the list of automatic changes in accounting procedure to which the automatic change procedures in Rev. Proc. 2015-13 apply.
Any method of accounting a taxpayer adopts must clearly reflect income. Under Sec. 446(e) and Regs. Sec. 1.446-1(e)(2)(i), unless otherwise provided, a taxpayer must secure the IRS’s consent before changing its accounting method. To obtain the IRS’s consent, taxpayers file Form 3115, Application for Change in Accounting Method. Even when the IRS’s consent is not required, taxpayers must file Form 3115.
RPs. 2015-13 and 2015-14 modify and supersede, for the most part, RP. 2011-14. The new procedures apply to Forms 3115 filed on or after Jan. 16, 2015, for a year of change ending on or after May 31, 2014.

[ttbtaxes]

The 2 new rev procs

.....are a total of what......496 pages? Tax season is already launched. How is anyone going to have the time to read them?