Discussion:Expensing de minimis capital assets

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Discussion Forum Index --> Advanced Tax Questions --> Expensing de minimis capital assets


Discussion Forum Index --> Tax Questions --> Expensing de minimis capital assets

GTSEA09 (talk|edits) said:

14 January 2010
I was reading regulation REG-168745-03 regarding the de minimis rule. I wanted to get some opinions of how other tax experts apply this regulation. What if a client buys a printer for $100. Or a laptop for $300. Or a chair for $75. In the past I would always show assets that lasted more than a year as deprecation and claim as a sec 179 expense if business use over 50%. From what I read in this regulation it seems as if these expenses could be treated as de minimis and just deducted under business supplies not listing each asset as a section 179 expense on form 4562. It seems as if as long as you don't distort income and you have a policy in place you can set a de minimis value for capital assets. Would it be better to just list every asset that lasts longer than a year as a section 179? Or is it safe to put them under supplies as long as you have a company policy in place for example all assets $500 or under will expensed as supplies. I was just curious about how other tax experts applied this regulation.

GTSEA09

DaveFogel (talk|edits) said:

14 January 2010
The regulation you cited are proposed regulations, which have no legal force or effect until they become final. See Tedori v. United States, 211 F.3d 488, 492 (9th Cir. 2000); Estate of Howard v. Commissioner, 910 F.2d 633, 637 (9th Cir. 1990). As a result, I would recommend that until such time as the IRS finalizes the regulations or withdraws them (which is possible), you continue to expense the purchases under Sec. 179 on Form 4562.

MWPXYZ (talk|edits) said:

14 January 2010
I agree, In fact, with clients with few assets, I will often Section 179 major repairs to avoid possible controversy. And sometimes supplies and office expenses. My only concern is someone buying my client's business and using only tax returns to calculate potential cash flows, may be upset to find that operating expenses are understated. But the purpose of preparing a return is not to provide cash flow information, or data for that matter.

Jdugancpa (talk|edits) said:

14 January 2010
Dave, everyone has a capitalization policy, just that some are not written and thereby often the policy is arbitrary, varying by year or by what you ate for breakfast this morning. For instance, on my desk are two staplers, a coffee mug, a Scotch tape dispenser, a two-hole punch and a solar-powered calculator. None of these items has a life of under 5 years, yet I expensed each one when I purchased it, without treating it as a 179 election. So the question is, what is a reasonable policy? Is what is reasonable the same for a business grossing $100k per year and the one grossing $10,000,000 per year? Most of my clients use $300 - $500 as the threshhold.

JR1 (talk|edits) said:

January 14, 2010
Puhleeze. Practicality folks. So GTS is the one who has the 8 page depreciation schedule including brooms. At a seminar that I used to attend, we annually gave our number for capitalizing/expensing. About half the crowd was at 500, the other half 1000, basically drawn between rural and city. I haven't updated mine for years, and still use a thousand as the cutoff. This was discussed ad nauseum a couple years back.

Southparkcpa (talk|edits) said:

15 January 2010
JR

You forgot to mention that those 8 page schedule's almost ALWAYS do NOT agree to the balance sheet. I LOVE these guys, capitalize an $89 adding machine and THEN do book depreciation AND Tax depreciation on it.

SHOOT THEM ALL I SAY!!!! (lol)

I ONLY use tax depreciation (with 5 or 6 exceptions for full GAAP report clientss), issue tax basis FS when needed, expense everything under $500.

DaveFogel (talk|edits) said:

15 January 2010
Jdugancpa, I have absolutely no qualms about your capitalization/expensing policy. The point I was trying to make was that the proposed regulations shouldn't be relied upon as authority until they are either finalized or withdrawn.

Natalie (talk|edits) said:

January 15, 2010
There is another reason not to depreciate everything under the sun. Legislators (and others) don't seem to understand what it is for or what it represents. So when they make laws that rely on business net income (for programs to benefit disadvantaged companies, for example), they don't allow depreciation as an expense.

Waynecpa (talk|edits) said:

15 January 2010
Another issue is that when you look back at the 8 page schedule 5 years from now and try to figure out where the "asset" is.

For myself, even those assets that seem like they should last 5 years don't - I'm on my 3rd office chair in 4 years and something is wrong with it too. Too much seat time perhaps??

Natalie (talk|edits) said:

January 15, 2010
Too much seat time. LOL. Wayne, I'm still on my first office chair which I purchased before I started my practice.

GTSEA09 (talk|edits) said:

18 January 2010
Great discussion everyone. I appreciate all your input on capitalizing and expensing assets. It really helps to see how other preparers are applying the rules when it comes to grey areas when there is no exact yes or no answer.

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