Take Action Now & Review Your Written Capitalization Policy
Dec 10, 2013
In September 2013, the Internal Revenue Service (IRS) issued the final tangible property repair regulations modifying and superseding the temporary regulations. Before year-end, an imperative action item for all businesses is ensuring that you are able to take advantage of the de minimis safe harbor outlined in the regulations. The de minimis safe harbor allows taxpayers to expense certain items that would otherwise be subject to capitalization and depreciation rules. In order to take advantage of the de minimis safe harbor, taxpayers must have a written policy in place no later than the first day of their tax year – January 1, 2014 for all calendar taxpayers.
The de minimis safe harbor rules allow a manageable per-item, per-invoice limit on what must be capitalized, but the caveat is the policy must be the same for book purposes. Taxpayers with an applicable financial statement (AFS), generally a certified audited financial statement, may expense amounts paid for tangible property up to $5,000. For those taxpayers without an AFS, the threshold is $500.
The de minimis safe harbor is also expanded to include items that have a useful life of 12 months or less, as long as they are within these same $5,000 and $500 limits and there is a written policy in place. Also, keep in mind that any additional costs (delivery or installation fees) that are included in the same invoice must be a part of the threshold analysis. However, if these additional costs are separately invoiced, then they don’t have to be included in the dollar limitations.
Now is the time to review your written capitalization policy if one’s already in place or adopt a formal policy. Take action before year-end. Ensure your policy is up-to-date.
By: Katie Mokry, Staff Accountant