If your business or rental activity acquires, produces or improves tangible or real property there are important developments which may require action prior to January 1, 2014, that you need to be aware of:
The IRS has issued long-awaited regulations on the tax treatment of amounts paid to acquire, produce, or improve tangible property. The regulations explain when those payments can be deducted, which confers an immediate tax benefit, and when they must be capitalized.
One of the more taxpayer-favorable aspects of these regulations relates to a new de minimis safe harbor. The regulations allow a taxpayer to deduct certain limited amounts paid for tangible property that are expensed for financial accounting purposes. A taxpayer with a certified audited financial statement may rely on the de minimis safe harbor if no more than $5,000 per invoice, or per item as substantiated by the invoice, was paid for the property. For businesses without a certified audited financial statement, the maximum figure is $500 rather than $5,000.
To use the safe harbor, the business must have accounting procedures in place at the beginning of tax year 2014 that treat as an expense amounts paid for property that costs less than a specified dollar amount or has an economic useful life of 12 months or less. In order to assist you with putting the proper accounting procedures in place, we have attached a sample policy your business may want to adopt by December 31, 2013.
The de minimis safe harbor is just one part of over 200 pages of new regulations governing when taxpayers must capitalize and when they can deduct expenses for acquiring, maintaining, repairing and replacing property. Every business with at least some fixed assets – that is, virtually every business – must comply with these new rules for its first tax year beginning on or after January 1, 2014. The difference between expensing and capitalizing can mean the difference between an immediate deduction at full value versus a deduction spread out over 5, 10, 15, 20 year or more.
We at Belfint, Lyons & Shuman (BLS) understand that these regulations can be complex and you may have questions as to how they will pertain to your own personal or business situation. We strongly encourage you to contact your representative at BLS to assist you in making sure that your business meets these requirements. You can also contact us at 302-225-0600 or firstname.lastname@example.org.