Dear Tax Client,
I am writing this letter to you because in 2012 you had either a small business, a rental property, a farm, or a combination of these. Brand new tax law regulations just came out that let me expense materials and supplies, as long as you paid $500 or less, and as long as you have a written procedure in place to do so. This will maximize your 2014 expenses, and I won’t have to depreciate any of your asset purchases that cost between $200 and $500, which I have had to do in the past.
Please look this over, and if you want to elect to do this, then fill out the back page and mail it back to me before January 1, 2014. You may want to make a copy for your records. If you wait too long, then we cannot do this until the 2015 tax year. This will save you money because (1) more expenses for you to reduce your tax liability and (2) I charge for every depreciable asset, and this will reduce the total amount of assets that need to be depreciated. J
Thank you.
De Minimis Safe Harbor – Reg. §§1.162-3(f) and 1.263(a)-1(f)
Taxpayers are generally required to capitalize amounts paid to acquire or produce a unit of real or personal property.
Under new and final regulations – as of October of 2013, the ceiling in the de minimis rule has been eliminated and replaced with a new safe harbor determined at the invoice or item level and based on the policies used by the taxpayer for its financial accounting books and records.
A de minimis safe harbor under Reg. §1.263(a)-1(f) rule is included for taxpayers without an applicable financial statement, provided that accounting procedures are in place to deduct amounts paid for property costing less than a specified amount, or amounts paid for property with an economic useful life of 12 months or less. The specified amount for taxpayers in this category is $500. If the cost exceeds $500 per invoice (or item), then no portion of the cost of the property will fall within the safe harbor.
The de minimis safe harbor is elected annually by including a statement on the taxpayer’s tax return for the year elected.
To use the de minimis safe harbor, a taxpayer has to have written accounting procedures in place at the beginning of the tax year treating the amounts paid for property costing less than a certain dollar amount as an expense for financial accounting purposes. These are applicable to tax years beginning on or after January 1, 2014.
Taxpayers without written accounting procedures that choose to elect the de minimis safe harbor for their 2014 tax years need to have appropriate procedures in place prior to the applicability date of the final regulations – January 1, 2014.
A taxpayer electing to apply the de minimis safe harbor must include in the cost of the property all additional costs (for example, delivery fees, installation services, or similar costs) of acquiring or producing the property if these costs are included on the same invoice with the tangible property.
If an invoice includes amounts paid for multiple tangible properties and the invoice includes additional invoice costs related to the multiple properties, then the taxpayer must allocate the additional invoice costs to each property using a reasonable method. Additional costs consist of the transaction costs of acquiring or producing the property and the costs for work performed prior to the date that the unit of tangible property was placed in service.
The de minimis safe harbor must be applied to all eligible materials and supplies if the taxpayer elects the de minimis safe harbor under Reg. §1.263(a)-1(f) . Taxpayers that do not elect the de minimis safe harbor must treat amounts paid for materials and supplies in accordance with Reg. §1.162-3 .
Capitalization Policy
1.1 PURPOSE
The purpose of the Capitalization Policy is to determine, distinguish and record materials and non-expendable equipment and personal property purchased or acquired in connection with the development, management, and maintenance of the following:
(Enter all that apply)
Name(s) of Business: ______
Signed: ______Date:______
Name(s) of Farm: ______
Signed: ______Date:______
Address(s) of Rental: ______
Signed: ______Date:______
1.2 Definition
A. If the initial cost of a piece of equipment and/or other personal property is
Five Hundred Dollars ($500.00) or more and the anticipated life or useful value of said equipment or property is more than one (1) year, the same shall be capitalized and recorded as non-expendable equipment and charged as a capital expenditure.
B. If the initial cost of the piece of equipment and/or personal property is
less than Five Hundred Dollars ($500.00), or its useful life is less than one (1) year regardless of cost, the same shall be treated and recorded as materials or inventory.