On November 24, 2015, the IRS released IR-2015-133. This ruling increases the threshold for deduction of capital items purchased. Under the prior tangible property regulations, a business without an audited financial statement was required to capitalize and depreciate assets purchased exceeding $500. Larger businesses who have audited financial statements were subject to a $5,000 threshold. Many tax practitioners complained about this inequity and so the IRS has decided to at least come part way to equalizing the situation. This change is effective for tax years beginning on or after January 1, 2016. However, the IRS will provide audit protection by not challenging the use of this new threshold for years prior to 2016.
Let’s look at how this may apply to your business. Assume you own a small manufacturing company located in Santa Ana. Your business purchases a new tool costing $2,000. Under the prior regulations, you would not be allowed to expense this purchase in the current year. You would be required to add this asset to your depreciation schedule and write it off over its useful life which could be 3 to 7 years. Under this new ruling, you would get to deduct the entire cost in the current year. This not only benefits you by reducing your taxable income, but also eliminates the clutter from having a number of small assets listed on your depreciation schedule.
To learn more about how the tax team at LSL CPAs can help, please contact us at 714.569.1000.
By: Edward J. Lieber, CPA
