There’s a straightforward option to write off the price of computer systems, telephones, and different modestly-priced capital gear. Often, once you purchase an merchandise, it’s a must to capitalize the price, which implies including it to your steadiness sheet, after which taking depreciation (an annual allowance) over a lot of years. That is so no matter the price of an merchandise. However as a substitute of doing this, the IRS has created a de minimis secure harbor that permits 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 during which to write down off the price of gadgets within the yr they’re purchased and positioned in service reasonably than having to depreciate the price over a lot of 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 means that you can write off the price within the first yr utilizing both of those choices. So why use the de minimis secure harbor? In spite of everything, any of those write-off choices produces the identical tax outcome. You get a full deduction for the price of gear within the first yr. Nicely, in case you purchase plenty of low-cost gadgets, utilizing the de minims secure 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 an alternative of preserving monetary information of those 40 capital expenditures, you possibly can elect to deduct $1,000 ($25 x 40) beneath the de minimis rule and keep away from this recordkeeping.
What You Have to Do
With the intention to use the de minimis secure harbor, make sure you comply with IRS necessities.
Use of the de minimis secure harbor have to be in line with the way you deal with gadgets in your books and information. You don’t want a written accounting process (this requirement solely applies to massive firms with relevant monetary statements akin to SEC filings or audited monetary statements), however you do should be constant. The gadgets aren’t property 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 secure harbor election.” The assertion should embrace your title and your taxpayer identification quantity. It must also include the assertion that you just’re making the de minimis secure harbor election.
The IRS doesn’t deal with utilizing the de minimis secure harbor election as a change in accounting methodology. So that you don’t must file Type 3115; solely your private assertion connected to the return is required.