De minus amount of $2500

[JenMO]

My farmers buy supplies, small equipment, cows - small equip might want to use the $2500 safe harbor, but does that mean each cow that cost under $2500 would fall under that also? If so, should i not elect the deminus and set up deprec on small equip and cows? If you elect the safe harbor, does everything fall under that or can you pick and choose? i thought i read it was for everything under $2500, but not sure.

[JenMO]

sorry, spelled "de minimis" wrong

[Jiggers]

That is the way I understand it. Be careful on cattle. I am suggesting to my farmers that a more reasonable amount for the safe harbor is $1,400.

Expensing the cattle on F as supplies, it is unclear as to how you report the sale. On F and lose the benefits of reporting on Form 4797? I haven't been able to come up with an answer on this. That is why my farmers will use $1,400 as most cows/bull would cost more than this.

[JenMO]

Are you just making a statement saying your safe harbor is $1400. How is that done?

[Jiggers]

I discuss this with my clients. My clients will have a written statement outlining their safe harbor amount and other information related to supplies and capitalization.

They will make that decision. I have a blank form for the amount and they will fill it in and sign it. It is for the tax year of 2015.

[TAX4US]

My understanding was if written off as supplies and later sold income goes back to where it was wrote off. We need some farm preparers to weigh in. I really don't like the issue of writing them off this way esp where you may have dairy cows involved. One other issue came to mind off that of a sch c person who buys equipment for business under the stated $#. My state taxes business personal property. If you put this in supply are you avoiding the personal property tax this way?

[JenMO]

my thoughts about farming,too. the advantage of buying cows as assets then when they are sold they do not generate SE tax. but if is the deminimis is too high, and cows are wrote off that way, would the sales be subject to SE tax?

[Jiggers]

I do a lot of farmers. I haven't been able to find anything that addresses this issue.

So I am telling my farmers that the amount should be about $1,400. Cows and bulls are going for more than that, but we just don't know what the future holds.

[JenMO]

some of my small farmers don't even need to expense off small equipment, like used box blades, brushhogs, etc. I think as long as the supplies they are expensing on the Sch F are actual supplies, and the repairs are repairs and not improvements, why would I have to elect a diminimis?

[Maribeth]

The limit for materials & supplies is still $200. Only if you make the election to include those materials & supplies in the de minimis rule for repairs can you use the $2500 limit.

[Jiggers]

Interesting discussion about the $2,500 and breeding cattle.

Question I have asked elsewhere and get no response:

Taxpayer has a Schedule C business, a rental house reported on Schedule E, and a Farm with cattle.

Can he elect the $2,500 amount for the Schedule C and the Schedule E and $1,400 or some other amount for the Farm?

[JenMO]

good question, in one of my readings, I didn't think it was a pick and choose, but not sure about different businesses. I thought this was supposed to clear things up?!

[TXEA]

For 2015, the DMSH is still $500.00. If you read the Notice 2015-82, the effective date is 2016 for the increase to $2,500. So, if you want to elect the DMSH and just use $500 as your amount....proceed as that is the rule for 2015.

The notice also states that for 2015, the IRS will offer audit protection for taxpayers that elect to apply the $2,500 safe harbor (taxpayers without an AFS). So, theoretically, you can use anything between 500 and 2500 for purposes of the DMSH. Just take care that the ceiling chosen is consistently applied all year.

The permanency of the increased Section 179 limit has made most of these problems moot for the average small business taxpayer.

The only problem I have about Notice 2015-82 is the requirement to have procedures in place at the beginning of the tax year to expense items below a certain dollar amount. It almost seems like the IRS is waving the requirement in this instance. While Non AFS taxpayers do not have to have written procedures, how many taxpayers had procedures (written or not) in place to expense up to $2,500 on January 1, 2015? Given that these TPR's change regularly and at the last minute, I think the next step the IRS needs to take is to eliminate the meaningless elections and procedures, and just say that if you expense up to a certain amount below $2,500 for book purposes, then you can do so for tax purposes.