Get ready to give those invoices some extra scrutiny!
IRS just released its much-awaited final regs on tangible property repairs and they contain some major changes to the way you account for these purchases.
The final regs replace the temporary regs put in place back in Dec. 2011.
But you won’t have years to get up to speed on the new way of doing things – you get just a few months. The new regs take effect Jan. 1, 2014.
While the timetable is tight, you can benefit when you acquire, maintain, repair or replace tangible property.
There is one catch, though: Certain provisions require you to supply a certified financial statement to IRS. And that might be tough for some smaller businesses to be able to do.
Still, there’s something for everyone. Check out the highlights of the final repair regs:
Change #1: New safe harbor requirements
The final rules change the exception to the usual requirement that you capitalize amounts you’ve paid to acquire or produce a unit of real or personal property.
Under the final rules, you’re given a safe harbor. You may deduct up to $5,000 of the cost of an item of property per invoice or per item.
This is one where those certified financial statements matter. If you don’t furnish a certified financial statement to IRS, you’ll be held to $500 per invoice or per item.
Note: To take advantage you must have written policies in place before the start of the tax year that specify a per-item dollar amount (up to $5,000) that will be expensed for financial accounting purposes.
So there’s no time to lose for finance shops that operate on a calendar year.
Not only that, but you might need to talk with certain vendors about breaking up invoices so individual bills don’t go over the $5,000 threshold.
Change # 2: Higher expensing threshold
It’s not just larger ticket purchases that will be impacted by the new regs – smaller buys also need new attention.
Have A/P start flagging all invoices of $200 or less. That’s because now you can characterize property as materials or supplies if it’s $200 or less.
That’s a 100% increase over the old $100-or-less limit.
Admittedly that’s lower than the $500 limit taxpayers suggested. But the Service still thinks the higher threshold will give you the ability to include more purchases, from calculators to coffee makers.
Change #3: Building maintenance
Small businesses do catch a break in the new rules. For them, building maintenance will now fall under the umbrella of repairs.
If your company has gross receipts of $10 million or less, you can expense repairs, maintenance, improvements, and similar costs to your building as long as the total amount paid doesn’t exceed the lesser of:
- $10,000, or
- 2% of the unadjusted basis of the building.
Of course, there’s a condition here, too, to be able to take advantage: Your building must have originally cost $1 million or less.
Cite: IRS TD 9636. To read the full version, click.
