11/13/2013 - By John Mascaro, CPA
Generally, all ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business may be deducted. Conversely, amounts paid to acquire, produce, or improve tangible property must be capitalized and not deducted. Existing standards for determining whether an expense may be deducted as a repair or must be capitalized require a facts and circumstances test. This method has been very controversial due to the subjective nature of the standards.
Various incarnations of temporary and proposed regulations (most recently issued in 2011) have attempted to simplify these rules. The IRS has issued final regulations that refine and simplify the rules contained in the temporary regulations and create a number of new safe harbors. In doing so, a framework is provided for distinguishing capital expenditures from supplies, repairs, maintenance, and other deductible expenses. The legislation included the following new provisions:
Generally, the final regulations apply to tax years beginning on or after January 1, 2014, but you may choose to apply them to tax years beginning on or after January 1, 2012. You also have the option to use the 2011 temporary regulations for tax years beginning on or after January 1, 2012 and before January 1, 2014. Because the final regulations go into effect in 2014, you must revise your written accounting procedures to comply with the expensing limits by the end of 2013 if you want to use the de minimis safe harbor, and in many instances, you must also change your method of accounting. We would be happy to answer any questions you have about the tangible property provisions, and help you to implement these rules for your business. Please contact our office at your earliest convenience. SALTMARSH CLEAVELAND & GUND, P.A.