The new de minimis rule

For taxpayers with an applicable financial statement, the amount paid for property may not exceed $5,000; for those without an applicable financial statement, the amount may not exceed $500. An applicable financial statement is a financial statement: (1) filed with the SEC (Form 10-K), a certified audited financial statement used for credit purposes, for reporting to shareholders or partners, or any other substantial nontax purpose; or (2) a financial statement (other than a tax return) required to be provided to a federal or state government or agency (other than the SEC or IRS).

http://www.journalofaccountancy.com/Iss ... 149424.htm

Is every corporation, S-corporation or LLC supposed/required to have an "applicable financial statement"?

No, of course not. In which case your de minimus threshold is $500, not $5000.

Not sure what you mean by "has to have." A taxpayer either does or doesn't have an AFS. You apply the DMSH accordingly

Thank you.

I hear a lot of grievance about the new rule. But it seems to me the new rule has actually made the works easier for the tax professionals. Instead of having to make a subjective judgment as to whether a newly acquired asset has to be depreciated or not like in the past, now we can just go by the $500 threshold, expensing items under $500 and depreciating items over $500.

Have I read it wrongly?

Other than most of us abandoned 500 per item 10 years ago or more for 1000 and some even higher. But granted, with Sec. 179, it's only a pain to keep adding crap to a depreciation schedule which no one will remember or be able to find in 10 years when they fold or sell.

Other than most of us abandoned 500 per item 10 years ago or more for 1000 and some even higher. But granted, with Sec. 179, it's only a pain to keep adding crap to a depreciation schedule which no one will remember or be able to find in 10 years when they fold or sell.

Does the new rule affect Sec. 179 in any way? So far I have not read anything that it has an effect on the first year expensing of the applicable items.

Many didn't bother to have a capitalization policy, but instead relied on the ability to add or remove §179 as needed on an amended return, or under audit. However, the provision that allowed us to change §179 isn't a permanent provision, and that expired at the end of last year (absent a change or extension to the law). Which means you would then need prior approval to change.

Sec. 179 is unaffected by this as far as I understand. The idea is that you are treating the de minimis expenditures as nonincidental material and supplies, rather than fixed assets, so 179 application is bypassed.

Don't forget the fact that you need to have a written expensing policy in place as of the BEGINNING of the year, and this is a recurring election that must be made on every return filed. Otherwise, the de minimis amount is $200.

I was bad though, and I expensed a $220 asset the other day. Hope they don't audit us.

I'm pretty sure that the written policy as of the beginning of the year applies to those w/ an AFS & the $5000 limit. The $500 limit requires a policy - does not have to be in writing - but certainly it seems prudent to put it in writing.

If you do not have an AFS, you do not need a written expensing policy. It's worse. You need an accounting procedure for book where you expense items under a dollar threshold. It doesn't have to be $500, but you can only expense up to $500 under the de minimis safe harbor. That doesn't mean you can't have a higher threshold. You can, just be ready to prove it under the prior law, clear-reflection-of-income standard. Also, qualifying materials and supplies are deducted under the de minimis rule, but the de minimis rule does not change its qualifying items into materials and supplies, though I expect most to be expensed for book purposes as materials and supplies.

Also, qualifying materials and supplies are deducted under the de minimis rule, but the de minimis rule does not change its qualifying items into materials and supplies, though I expect most to be expensed for book purposes as materials and supplies.

How is this any different? For instance, if the qualifying items are expensed rather than capitalized, they will not appear on the fixed assets schedule. They will also, in Michigan, not be counted as personal property to be taxed for personal property tax purposes because "materials and supplies" are not taxed for PPT.

Sec. 179 is unaffected by this as far as I understand. The idea is that you are treating the de minimis expenditures as nonincidental material and supplies, rather than fixed assets, so 179 application is bypassed.

Don't forget the fact that you need to have a written expensing policy in place as of the BEGINNING of the year, and this is a recurring election that must be made on every return filed. Otherwise, the de minimis amount is $200.

I was bad though, and I expensed a $220 asset the other day. Hope they don't audit us.

Is this enough to fulfill the written expensing policy requirement?

http://www.bpmcpa.com/assets/Sample-Cap ... Policy.pdf

Also, qualifying materials and supplies are deducted under the de minimis rule, but the de minimis rule does not change its qualifying items into materials and supplies, though I expect most to be expensed for book purposes as materials and supplies.

How is this any different? For instance, if the qualifying items are expensed rather than capitalized, they will not appear on the fixed assets schedule. They will also, in Michigan, not be counted as personal property to be taxed for personal property tax purposes because "materials and supplies" are not taxed for PPT.

Subject to certain exceptions not relevant here, non-incidental materials and supplies get capitalized until used or consumed. De minimis safe harbor items get expensed, unless overridden, for example, by section 263A.

If you do not have an AFS, you do not need a written expensing policy. It's worse. You need an accounting procedure for book where you expense items under a dollar threshold. It doesn't have to be $500, but you can only expense up to $500 under the de minimis safe harbor. That doesn't mean you can't have a higher threshold. You can, just be ready to prove it under the prior law, clear-reflection-of-income standard. Also, qualifying materials and supplies are deducted under the de minimis rule, but the de minimis rule does not change its qualifying items into materials and supplies, though I expect most to be expensed for book purposes as materials and supplies.

This is just another ridiculous example of the Treasury finally recognizing something that people have been doing for years - using a reasonable $500 threshold so they don't have to capitalize their mouse and keyboard and 10-key.

Foolish me. I thought my response would completely answer his question!

IMO, your response completely answered his question. That's why I didn't post anything until much later.

How are most state's handling 1.263(a)-1(f) de minimis election to expense purchases under the threshold? Even though states like CA conformed to the expensing election, I don't think CA did for personal prop tax purposes. I'll ask a CA state auditor and post her answer.

My God, how does this relate to a person with one rental double. Is anyone at IRS going to give a damn. Once the statute of limitations expires for a given tax year, can IRS go back any further? This is really not material.

Remember the de minimus is a safe harbor election, not a rule. I will not put anything on a depreciation schedule less than $1,000. I went to a CPE and the speaker would not capitalize anything under $5,000.

the $500 is gone and it is $2,500 now - correct??