Discussion:Depreciate or Expense

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Discussion Forum Index --> Tax Questions --> Depreciate or Expense


Lalamay99 (talk|edits) said:

16 January 2006
Just wondering if anyone uses a certain amount on items to decide whether to expense or depreciate. Ex: If a depreciable item costs less than $500 or so, do you expense it?

DZCPA (talk|edits) said:

16 January 2006
We use $1000 per item. They asked the question at a Gear Up Tax Seminar and over 99% who used $1000 had no problems with IRS. You can section 179 it if you are concerned (if it qualifies).

LAEsquire (talk|edits) said:

22 May 2007
Regardless of income (i.e., whether $1000 is significant to the business)?

What expense category do you use for such otherwise depreciable things as phones, computers, furniture that is under $1000? Supplies? Office expense?

Sandysea (talk|edits) said:

22 May 2007
I do financial statements upon GAAP, so I will expense items which are under the threshold under the category that is most meaningful. I use subcategories such as Indirect expenses, facilities and equipment, marketing and g&a.

A telephone I would expense...bottom line. Doesn't matter what the cost is if the useful life is 1 year or less I don't depreciate.

CEwoodson (talk|edits) said:

23 May 2007
There are court cases in which amounts were accepted as small enough to justify expensing rather than depreciating. One of them used $75; another used $10,000. In both cases the court seemed to rely on the nature of the taxpayers' "usual" practice and size.

A tactic I've used that has been accepted in office audits is based on the old $100 threshhold that used to be published in Pub 17 (although I haven't seen it in a looooong time). Because we apply inflation adjustments to many amounts in the tax code it makes sense to apply them to the "small amount" of $100 previously published in Pub 17.

So, using the old CPI base of 100 (which began in 1967) and comparing it to the Pub 17 figure of $100 (which was in Pub 17 when I began tax preparation in 1976) and then applying the CPI figure for the current tax year, I come up with a figure of well over $500 based on the LA region CPI figures.

I have chosen to use $500 for the last few years and (so far) have never had any problem with an office audit. The $1,000 is certainly reasonable (in my view) using this sort of rationale. I do believe it is important to have a rationale other than the "fact" that many people say they use an amount with "no trouble."

Jdugancpa (talk|edits) said:

23 May 2007
What is an appropriate threshold for Boeing may not be appropriate for Ma and Pa Kettle. I think $1000 is likely too high for the MaPaKettles of the world. Some measure of materiality has to come into play.

Sandysea (talk|edits) said:

23 May 2007
Agreed and as well we don't forget the USEFUL life...it may cost 500.00 but is expendable in less than one year...so then you expense it....

JR1 (talk|edits) said:

May 23, 2007
$1000, matters not the size to me. Life's too short for long depreciation schedules.

Bottom Line (talk|edits) said:

25 May 2007
It's amazing how many long depreciation schedules I see. $75 for a new ceiling fan in a rental house. I believe it's a money grab by the prior tax preparer.

Jake (talk|edits) said:

27 May 2007
The prior tax preparer does it according to the "law" and he/she is called a money grabber? Congress and/or the IRS should set some standards. Example, carpeting in rental units should be permitted to be expensed. Under current law how can IBM be allowed to expense a $1,000 capital asset and John Doe not be allowed. If I were ever audited I suspect that the IRS might question my Wall St Jrl subscription. How many executive Wall St Jrl subscriptions do you think IBM expenses? Same with cell phones. Small business gets grilled - big business is never questioned.

Szuckerman (talk|edits) said:

4 September 2007
Question for anyone on the board. What if you buy 100 items that cost less than $1,000 but the total of the these items (for example, GPS systems) equal $100,000. Thus you would be expensing $100,000. Thanks for any input.

DZCPA (talk|edits) said:

4 September 2007
Sure. Expense it. What would a total of small items have to do with the reason to lump them all together to depreciate? In a few years they will all be replaced anyway.

Szuckerman (talk|edits) said:

4 September 2007
I understand but just seems a little strange when you are buying $100,000 worth of equipment and expensing it because you are buying 100 GPS systems that each cost less than $1000.

Donniecastleman (talk|edits) said:

4 September 2007
With my entertainer people I usually do the old by the book routine where if someone is buying wigs or musical gear or stuff that will last longer than a year, I'll put it on the 4562. If it's things that either are small and have a tendency to get lost or things that get used up in a year such as guitar strings, I'll put it in the supply category. But my general rule is the $100 rule simply because I feel like the supply category is usually pretty large and I welcome the chance to classify something as an asset rather than an expense. That's just my opinion.

Donniecastleman (talk|edits) said:

4 September 2007
Oh by the way, I usually 179 all assets anyway due to the deflation of our currency, so it's more of a presentation issue with me more than the correct place to write it off, I'll 179 everything possible as entertainers are always buying the latest and greatest thing!

DZCPA (talk|edits) said:

4 September 2007
Szuckerman, Everything is strange if one stays in their little box.
Donnie, If you are looking to make your returns look "pretty", how about a few more supply categories. Sheet Music, Strings, Instruments, Speakers, Electronic Devices, Props, Containers, Costumes, Tobacco... joke.

Donniecastleman (talk|edits) said:

4 September 2007
Haha DZ, without even thinking when I went through your list I automatically categorized each thing as asset or expense, just like when I was a kid walking through the mall and passed a bunch of hoodlums my hand automatically went back to check that my wallet hadn't been lifted. sheesh I need a vacation! If you saw my entertainer's tax organizer and saw all my categories you'd get a chuckle, I have "tip jar" listed on page 3 as a joke.

DZCPA (talk|edits) said:

4 September 2007
Donnie, Call my office Tuesday for some tips.

Donniecastleman (talk|edits) said:

4 September 2007
I was just telling my wife that I hadn't called you yet and that I was going to call you tomorrow, I'll check in tomorrow, thanks, my wife was enviously looking at your picture in Monte Carlo, I should take her there 5 years from now when I can afford a vacation.

Donniecastleman (talk|edits) said:

4 September 2007
Oh by the way, my comment about presentation over being correct should have said presentation over being "politically correct", meaning that like Bottom Line said about the $75 ceiling fan being depreciated over many years, wouldn't happen in my book, expense that thing and move on, correct?

Death&Taxes (talk|edits) said:

4 September 2007
I like to put music scores, CDs etc on the 4562, electing 179 as 'Library Additions.' Right now we are in a grace period as 179 may be elected on an amended return, which ties the hands of an auditor, but that provision is due to expire so 179 failsafes returns.

Szuckerman (talk|edits) said:

9 September 2007
DZCPA - so I assume you would expense $100000 worth of items bought at one time since your position would be that each one cost less than $1000 (which is your threshold you use for expensing vs. capitalizing)? I can not find any authority on that position.

JR1 (talk|edits) said:

September 9, 2007
What authority would you claim that says that all those items must be considered collectively?

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