Under what circumstance would we NOT make the annual safe harbor election to use the $500 per invoice/item for EVERY business client? When would you NOT do so?
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Can't think of one right now. Almost all my business clients are small business or rentals and the deminimis safe harbor will be all they need. Keep in mind it is a yearly election.Originally posted by ttbtaxes View Post
I will past this link that has a Q&A that I find it very helpful:
Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
A biz with losses may prefer to NOT use the $500 but stick with the $200 limit and depreciate those items to push his/her deductions into future years with profits.Comment
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Good point. But that is generally a strategy for any business with losses to defer expensing to future profitable years by choosing to depreciate! That was true before the safe harbor regs.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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I would like to make sure I understand this correctly. With a deminimus safe harbor of $500 election, say the company/taxpayer purchases a computer for $450, does taking this election mean that it does not have to be listed as a asset (section 179 either) and can be expense like buying a box of paper?Comment
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That is my understanding as well!Originally posted by geekgirldany View PostTaxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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small business
Most of what is in the TaxBook is for property and buildings and components. I am mostly dealing with small businesses who buy tools and computers and furniture.
So how does this apply to these people? Your question about the computer is helpful. What if the computer costs $600? Do we depreciate or section 179 it like we always did?
I think I am thoroughly confused about this issue!!!!!
Linda, EAComment
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Continue doing what you did before. Either depreciate or do a sec. 179 deduction for a $600 item.Originally posted by oceanlovin'ea View Post
Electing the de minimis does not lock you out from using depreciation or sec. 179.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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But......
BUT we have to make an election and send it in every year --just in case there are some items below $500. Is that correct?
What is the part about having to file Form 3115 for previous years?
Linda, EAComment
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I believe it does. At the beginning of the the year this decision needs to be made, at tax time you file the election with the tax return. With small taxpayers that do not have to make this election in writing in the beginning of the year, only treat it on the books as such, you might want to be careful. Yes, their books are a mess most of the time, and especially with assets they have no clue and who wants to proof. But I believe this proof rests on the shoulders of the taxpayer and not the IRS.Originally posted by ATSMAN View PostComment
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The de minimis procedures are not required to be in writing if....
From the aicpa link posted previously.
Q: Are written capitalization procedures required by every business electing the de minimis safe harbor?
A: The de minimis procedures are not required to be in writing if the taxpayer does not have an applicable financial statement and is applying the lower $500 de minimis threshold. If the taxpayer has an applicable financial statement and intends to apply a threshold greater than $500 but less than $5,000, the accounting procedure must be in writing. A best practice, however, is to document these procedures in writing.
Q: How is the de minimis election made?
A: The election is made by attaching a statement to a timely filed original federal tax return (including extensions) for the tax year in which the amounts are paid. The statement must be titled "Section 1.263(a)-1(f) de minimis safe harbor election" and include the taxpayer's name, address, and taxpayer identification number, and a statement that the taxpayer is making the de minimis safe-harbor election under Regs. Sec. 1.263(a)-1(f). In the case of affiliated groups of corporations filing a consolidated return, the election statement must include the names and identification numbers of each member making the election. Taxpayers are not required to attach the written de minimis policy to the tax return.
Q: Is the de minimis safe-harbor election revocable, and what is the effective time frame for making the election?
A: The de minimis safe-harbor election must be made annually. Once made, the election is irrevocable for the tax year elected. The de minimis safe-harbor election can be made for tax years 2012 and 2013; however, de minimis capitalization procedures must be in place at the beginning of the respective tax year.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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Why use the de minimis safe-harbor in a trade or business when one can 179 these items? What is the point of the de minimis safe-harbor being irrevocable? For rentals, the de minimis safe-harbor could be helpful but I don't see where over $500 items would not still be depreciated.Comment
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You elect the de minimis each tax year so it is only irrevocable for one year after election.
I think in an earlier post we discussed why someone would elect.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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A few reasons:Originally posted by DonB View Post
1. It eliminates having to deal with a lot of small items on the depreciation schedule.
2. If you miss something under the $500 in an expense account that you should have elected Sec 179 (since you did not file the election) it is covered by the election.
3. You eliminate having to deal with every single material and supply, small items of equipment, etc. The materials and supplies alone is worth making the election. Remember, non-incidental M &S can include something as basic as toner if over 200.00.
4. Section 179 is subject to recapture if personal use drops below 50% (e.g., computers, phones, tablets, etc).
There may be more.Comment
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Thanks TXEA. The last point recapture of sec 179 when business use drops below 50% is missed by many!Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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