New Tangible Property Threshold!!!! I'm so excited.

[NECPA in NEBRASKA]

For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

IR-2015-133, Nov. 24, 2015

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500  the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.

The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

Further details on this change can be found in Notice 2015-82, posted today on IRS.gov.

[rfassett]

Woo hoo!!!! One would almost think that sanity was settling into Washington.  I said "almost".  But this certainly is a great move!

[Lee B]

I have mixed feelings about this.

1.  It creates a wider gap between Book and Tax Depreciation for larger clients.

2. if your state has personal property taxes like mine, then you are in a situation of having to

    report assets for personal property tax reports which are not on a depreciation schedule.

 

[Randall]

15 hours ago, cbslee said:

I have mixed feelings about this.

1.  It creates a wider gap between Book and Tax Depreciation for larger clients.

2. if your state has personal property taxes like mine, then you are in a situation of having to

    report assets for personal property tax reports which are not on a depreciation schedule.

 

I've been using the tax schedule for the property tax reports.  Can we still capitalize the smaller items and use 179?  Seems the client would still get the tax write-off and it would      retain a asset schedule.  I don't have to worry about the 179 max limitations with my clients.

 

[Gail in Virginia]

15 minutes ago, Randall said:

I've been using the tax schedule for the property tax reports.  Can we still capitalize the smaller items and use 179?  Seems the client would still get the tax write-off and it would      retain a asset schedule.  I don't have to worry about the 179 max limitations with my clients.

 

Most of us have not had to worry about 179 limits for the past several years, but if the limit reverts back to $25,000 I will have to start with at least some of my clients who buy large equipment.

[Randall]

40 minutes ago, Gail in Virginia said:

Most of us have not had to worry about 179 limits for the past several years, but if the limit reverts back to $25,000 I will have to start with at least some of my clients who buy large equipment.

I agree, it could get a little messy.

[mcb39]

Quote

The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

What is an eligible business for years prior to 2016?

[Lion EA]

Ones that don't have an applicable financial statement, maybe?  Away for Thanksgiving, so I'll read the notice next week.  See the Notice # in NECPA's post.

[mcb39]

2 hours ago, Lion EA said:

Ones that don't have an applicable financial statement, maybe?  Away for Thanksgiving, so I'll read the notice next week.  See the Notice # in NECPA's post.

I got the notice from the IRS.  I wondered at the time what businesses would be allowed to use this ceiling in 2015 since the notice states that it isn't effective until tax year 2016.

[Abby Normal]

On 11/24/2015, 5:57:18, cbslee said:

report assets for personal property tax reports which are not on a depreciation schedule

LOL

[SaraEA]

This is great for some clients but not for others.  I think I will ask some of my "younger" businesses to write accounting procedures that say they will expense items costing $500 or less, thus allowing them to use the "old" new rules.  Newer businesses might not need to expense those higher amounts because their taxes are low anyway and may hurt themselves in later years when income rises and they don't have much to depreciate.

As for keeping a separate schedule for property assessor reports, I know what's right and what's too much of a pain in the .....   I echo jmdaviscpa: " LOL."  But I do follow the IRC to the letter.

[jklcpa]

If you have a good depreciation program for your accounting clients, it might allow setting up a separate category for those assets that are expensed under these rules. I use Thomson Reuter Fixed Assets CS that will allow me to set up a separate group on the main depreciation schedule, or set up assets for only "Other" method, and then I can customize the report to exclude the group entirely for tax or book purposes, or include it so that the property tax reports would be inclusive.

[Abby Normal]

14 hours ago, jklcpa said:

If you have a good depreciation program for your accounting clients, it might allow setting up a separate category for those assets that are expensed under these rules. I use Thomson Reuter Fixed Assets CS that will allow me to set up a separate group on the main depreciation schedule, or set up assets for only "Other" method, and then I can customize the report to exclude the group entirely for tax or book purposes, or include it so that the property tax reports would be inclusive.

And your clients will pay more property taxes.

[jklcpa]

Yes, I realize that. I was only answering about how we could use a program that we might already own to track these assets if one chooses to do so, because someone made the comment about creating separate schedules.

[kcjenkins]

On 11/24/2015, 10:32:53, NECPA in NEBRASKA said:

In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

That is the best part of this notice, I think.

 

[SaraEA]

At an NCPE seminar last week, the speaker noted that the IRS will not challenge the $2500 in years prior to its effective date of 2016.  He said go ahead and use it for 2015.  Only problem I see with that is the election statement, which specifically says $500.  I don't think you can do a free-hand election stating $2500. 

[Abby Normal]

16 hours ago, SaraEA said:

At an NCPE seminar last week, the speaker noted that the IRS will not challenge the $2500 in years prior to its effective date of 2016.  He said go ahead and use it for 2015.  Only problem I see with that is the election statement, which specifically says $500.  I don't think you can do a free-hand election stating $2500. 

The election that ATX provides does not mention a dollar amount, just the code section:

Section 1.263(a)-1(f) De Minimis Safe Harbor Election
Taxpayer elects to apply De Minimis Safe Harbor under Reg. 1.263(a)-1(f).