Discussion:Assets with Life Greater than 1 Year but low in value, Restaurant Bar Tavern Smallwares
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Discussion Forum Index --> Tax Questions --> Assets with Life Greater than 1 Year but low in value, Restaurant Bar Tavern Smallwares
| 21 December 2006 | |
| What do you typically advise clients when you see that they have heard of the above rule so they are depreciating assets individually costing $150 and less? | |
| 22 December 2006 | |
| Do you ask them to group such thing into one account so that you can show it on the tax return as Section 179? Otherwise, I'm afraid it will get lost in the QB file and I don't want to spend time digging around for the small assets. THANKS! | |
| 22 December 2006 | |
| Is this a restaurant or tavern Chase? If so check out Rev. Proc. 2002-12 for dealing with 'smallwares'.
QB has a default account of China, Siver, Glass, other that I have restuarants post too. | |
| 22 December 2006 | |
| That's funny -- I've never seen that default account even though I chose the Restaurant scenario -- or maybe I just did not see it -- my eyes are tired and I really need this Holiday badly!! | |
| December 22, 2006 | |
| $1000 and >1 year was the split consensus at a GearUp seminar a couple years back. That was the break point for the room. So if it last 25 years, I don't care, unless it's over $1k. That is contrary to regs, which require capitalizing anything...but common practice. If you're in a lower economic market, $500 would do. IMO | |
| 22 December 2006 | |
| Chase: I don't think there actually any rule about this. My own experience is that the threshold amount should be set according to the size of the business & more particularly the size and amount of capital assets the business buys. The main thing, though, is that there should be a policy that is enforced & consistent through the years. It should be changed only when the underlying assumptions that were used to set the policy have changed. Then if there should be an audit only the reasonableness of the threshold would be the subject of contention. | |
| 22 December 2006 | |
| With most of my clients I am the one that is enforcing the threshold. Its starts at $500 usually and creeps up depending on the dollar amount of whatever they purchase. If they buy something for $600, the want the new limit to be $650, then $750, and so on. Only when I explain the one-year rule will they relent. I have two restaurant/tavern clients and both of them will capitalize pretty much whatever they buy, its uncanny.
Chase - I may have put it in there myself, I could use a holiday also... | |
| 22 December 2006 | |
| Proposed Reg. 168745-03. See Part D regarding DeMinimis Rule. Probably effective in 2007.
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| 22 December 2006 | |
| Will: What is the 1-year rule? -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 22 December 2006 | |
| LH - As I entitled the link, I did not mean to imply there was or will be a de minimis rule. It was simply the title section in proposed regs. I just meant the proposed regs. would not take effect before 2007. However, in practice there seems to be an unwritten one. Regarding the one year rule, the current regs. state substantially past the tax year in which asset was purchased. Courts have used the 12 month rule. Reg. 1.263(a)-2(a). | |
| 22 December 2006 | |
| Solomon: Ok. I now understand that you're referring the definition of capital asset that includes having a useful like of substantially more than 1 year. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 22 December 2006 | |
| Lh - As you worded it, that is how the new reg. would read. However, the current reg. reads "substantially past the tax year" - not 12 months or one year. In effect, because the reg. does not define "substantially", the tax court has defined it as 12 months and the new regs. will follow that definition. | |
| 22 December 2006 | |
| Solomon: I hope I don't sound argumentative on this point. I teach the IRS New Business Workshops at least a dozen times a year so I'm accustomed to seeing this issue in IRS Publication 946, How to Depreciate Property, under the heading Property Lasting More Than One Year (page 5):
"To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Example. You maintain a library for use in your profession. You can depreciate it. However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Instead, you deduct their cost as a business expense." So even the IRS can't get it straight whether they mean lasting beyond the year placed in service or useful life exceeding 1 year. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 22 December 2006 | |
| Lh - I understand what you are saying. The current Reg. 1.263(a)-2(a) is explicit in that it does not use the one year rule. Instead it uses substantially past the current tax year in which asset is placed in service. The Proposed Reg. will clarify that as I understand it. The emphasis in current reg. is "current tax year" rather than 12 months from date placed in service. You are right - tis frustatin. | |
| 22 December 2006 | |
| For those who would like to read more I think the NPRM REG 168-745-03 has a substantial discussion | |
| 22 December 2006 | |
| I think this is where a little "professional judgement" comes into play. I think that, as I read the rules, anything that will last more than one year, should be depreciated. But we also need to use a little common sense. An item that costs $10 and will last 5 years, should be depreciated, but the cost of keeping track of this item, far exceed the original cost. We don't have a set dollar amount, but look at each client and have them set a policy based on their circumstances. A farmer client explained his tax policies long ago: "A pig gets fed, a hog gets slaughtered". | |
Death&Taxes (talk|edits) said: | 22 December 2006 |
| Please understand that if I see a Quicken P & L from clients with Sch C it is a big deal [ :) ] but I used to 179 anything eligible, even a musician's tuxedo or their musical scores/cd's. This is because back around 1990 at an office audit the examiner capitalized, rightly, a machine used for gouging woodwind instruments that cost less than $500, as I understood it. Client had lumped it in music supplies with his cane and reeds. Back then you had to elect 179 on the original return, but now I believe you can trump the auditor by electing 179 at that point. Reg. 1.179-5 I believe the Regulation says you must file an amended return, but if any auditor insisting on that formality would be in violation of paperwork reduction guidelines. I do note that this provision is to expire 12/31/07 as I read it. I am not advocating playing 'audit lottery' but only spelling out a fallback position should a gung-ho examiner dispute your $500 or $1000 threshhold. | |
Bottom Line (talk|edits) said: | 24 December 2006 |
| I use a $500 threshhold and section 179 whenever I can. I've seen other preparers depreciate a $35 calculator. One was stupid enough to include his itemized bill with the client copy of the return. Sure enough - it was a money grab. He charged extra for each piece of depreciated equipment. TP lost money on two counts - 1) extra fee paid to the preparer and 2) extra tax paid because 179 wasn't taken. Boy - was he mad!! I've gotten a couple of referrals from him too because I was "not trying to cheat him". Very few of mine max out their 179 anyway; so the "gung-ho" examiner wouldn't gain any additional tax by recategorizing to a depreciable asset that we would have 179'd anyway. | |
| 1 April 2007 | |
| Tim, can we get a link to Rev Proc 2002-12. Thanks 2002-12 It should be on our resources page. but the link there doesn't work. | |
Www.cpa1.biz (talk|edits) said: | 1 April 2007 |
| Where are you all finding this information. Kevin, are you using a database/PPC/../? | |
| 1 April 2007 | |
| no, just searching the usual suspects on the web, this one's on unclefed | |
Www.cpa1.biz (talk|edits) said: | 1 April 2007 |
| Google does the body good!!! | |
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