There’s a straightforward option to write off the price of computer systems, telephones, and different modestly-priced capital gear. Normally, once you purchase an merchandise, it’s important to capitalize the price, which suggests including it to your steadiness sheet, after which taking depreciation (an annual allowance) over numerous years. That is so no matter the price of an merchandise. However as an alternative of doing this, the IRS has created a de minimis protected harbor that enables small companies to deduct as much as $2,500 per bill (or per merchandise as substantiated by bill).
Expensing Versus Bonus Depreciation?
At current there are two different methods by which to jot down off the price of objects within the yr they’re purchased and positioned in service somewhat than having to depreciate the price over numerous years:
- Part 179 deduction, known as first-year-expensing (as much as $1,020,000 in 2019; $1,040,000 in 2020).
- Bonus depreciation for 100% of the price in 2019 and 2020.
The legislation permits you to write off the price within the first yr utilizing both of those choices. So why use the de minimis protected harbor? In spite of everything, any of those write-off choices produces the identical tax consequence. You get a full deduction for the price of gear within the first yr. Effectively, for those who purchase a number of low-cost objects, utilizing the de minims protected harbor rule simplifies recordkeeping significantly. For instance, say you personal a small motel and purchase a brand new iron costing $25 (prices for resort/motel-use irons vary from about $9 to $40) for every of your 40 rooms. As a substitute of retaining monetary data of those 40 capital expenditures, you’ll be able to elect to deduct $1,000 ($25 x 40) underneath the de minimis rule and keep away from this recordkeeping.
What You Must Do
As a way to use the de minimis protected harbor, be certain you comply with IRS necessities.
Use of the de minimis protected harbor should be in line with the way you deal with objects in your books and data. You don’t want a written accounting process (this requirement solely applies to giant firms with relevant monetary statements akin to SEC filings or audited monetary statements), however you do must be constant. The objects aren’t belongings in your steadiness sheet.
Connect an election assertion to a well timed filed revenue tax return. Search for the assertion entitled “Part 1.263(a)-1(f) de minimis protected harbor election.” The assertion should embrace your identify and your taxpayer identification quantity. It also needs to comprise the assertion that you simply’re making the de minimis protected harbor election.
The IRS doesn’t deal with utilizing the de minimis protected harbor election as a change in accounting methodology. So that you don’t have to file Type 3115; solely your private assertion connected to the return is required.