Menu
HARIK MINASSI COALE
  • About
    • Team
      • Patricia Harik
    • Affiliation
  • Services
    • Accounting Services
    • Financial Planning
    • Business Consulting
    • Tax Strategies
  • Resources
  • Payments
  • News & Updates
  • Contact
  • About
    • Team
      • Patricia Harik
    • Affiliation
  • Services
    • Accounting Services
    • Financial Planning
    • Business Consulting
    • Tax Strategies
  • Resources
  • Payments
  • News & Updates
  • Contact

Capitalization and Safe Harbor: Know the Rules

11/20/2019

 
Whenever you spend money on your business, the expense is either deducted on your federal tax return in the year it is incurred or depreciated over time. But much more is involved than just that. And when you hear terms like capitalization and safe harbor, it can feel even more complicated. Here are details to help you better understand the process.
  • Deductible costs:These are the day-to-day costs of operating your business, such as rent, insurance, maintenance, and office supplies. The Internal Revenue Service lets you deduct all these "ordinary and necessary expenses" during the taxable year in which they are incurred.
  • Capital costs: These are payments you make to acquire or improve your building and equipment. These costs, such as upgrading an HVAC system, are considered to be business investments that add to the value of your asset. Capital costs are depreciated on tax returns over the course of their "useful life" as determined by the IRS. The useful life of a laptop, for instance, is three years, whereas the useful life of telecommunications equipment is seven years. Sometimes, intangible assets, such as patents and trademarks, are considered capital expenses.

​It seems straightforward. But, in fact, determining whether a cost must be capitalized over X years isn't as easy as it looks. And, to make accounting even more fun, the IRS has a "de minimis safe harbor election" that lets you deduct expenses that you otherwise would capitalize.

De-what?
The de minimis (Latin for "concerning the smallest things") safe harbor is a yearly tax return election that allows you to deduct expenses for tangible property that costs below a certain threshold. Essentially, it gives taxpayers an immediate but limited tax break on items that otherwise would take many years to depreciate.

The IRS has been busy lately increasing the threshold from $500 to $2,500 for businesses that don't have an audited financial statement, something many small businesses do not have. This means that if your small business bought, for example, a computer for $2,499, you might be able to deduct the entire amount on that year's tax return, instead of over many years. For businesses that maintain an audited financial statement, the threshold continues to be $5,000.

De minimis safe harbor is considered to be a good thing because taking immediate tax deductions simplifies recordkeeping and increases tax refunds.

How to make "de maximis" of your de minimis
  • Ensure that you expense all tangible property costs below $2,500.
  • Because the de minimis safe harbor threshold can be applied to any and all tangible property purchases below $2,500, ensure that your bookkeeping staff applies the threshold to each qualifying item.

​This is just an introduction to an important topic—there's a lot more to know. Give us a call today, and we'll help you take charge of your purchases.

Comments are closed.

    Newsletter articles are posted every 2 weeks. ​

    If you would like to have our e-newsletter delivered directly to your inbox, please sign up. Your information is confidential; you can unsubscribe at any time. Subscribe.

    Archives

    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017

    Categories

    All
    1099 Form
    2021 Adjustments
    401Ks And IRAs
    529 College Savings Plans
    941 Form
    ACA Affordable Care
    Accounts Receivables
    ADA - Americans With Disabilities Act
    Americans With Disabilities
    Annuities
    Audits
    Back Pay
    Bankruptcy
    Basis
    Benefit Transfers
    Blockchain
    Bonuses
    Box 1
    Budgeting
    Business Deductions
    Business Interruption Insurance
    Business Structure
    Business Tips
    Capital Gains
    CARES Act
    Cash Flow
    Charitable Gifts
    Communication
    Compensation
    Coronavirus
    Coronavirus Relief Package
    Credit Cards
    Credit Score
    Crowdfunding
    Death And Debt
    Debt
    Deductions
    Depreciation
    Disaster Relief Payments
    Disaster Tax Break
    Diversity Training
    Divorce
    D&O Insurance
    Down Payment
    Dress For Success
    Earned Income Tax Credit
    Education Credits
    EIN Employee ID Numbers
    Elder Mediation
    Employee Direct Deposit
    Employee Leave
    Employee Overpayment
    Employee Ownership
    Employees Cross State Lines
    Employment Taxes
    Entertainers
    ESOP
    Estate Planning
    Estate Taxes
    Estimated Taxes
    Executor
    Expenses And Depreciation
    Expensing Rules
    Family Businesses
    Family Leave
    Fiduciary
    Filial (Adult Child) Responsibilities
    Filing Status Options
    Financial
    Financial Advisor
    Financial Planning
    Flood Insurance
    Floods
    Franchise Ownership
    Fraud
    Freelancing
    Furloughs
    Headcount Reporting
    Health Care
    Health Savings Account
    Hiring Compliance
    Hiring Help
    Hiring Tax Credits
    Hoaxes
    Hobby Vs. Business
    Home Equity Loans
    Home Office Deduction
    Homeowners
    HSA
    Hurricanes
    IC-DISC
    Identity Theft
    Income Tax
    Information Return
    Inherited Mortgage
    Insurance
    Investing
    Investors For Your Business
    IRAs
    IRS CP2000
    IRS Disagreements
    IRS Identity Protection PIN
    IRS Rights
    Joint Tenancy
    Key Performance Indicators
    Kiddie Tax
    Layoffs
    Lease Accounting
    Leave
    Life Insurance Trusts
    Loans
    Long Term Care Insurance
    Long-Term Care Insurance
    Managing Employees
    Marriage Penalty
    Maternity And Paternity Leave
    Medicaid Trust
    Medical And Dental Deductions
    Medicare
    Mergers
    Mileage Rates
    Morale
    Mortgages
    Multistate Taxes
    Myers-Briggs Personality Types
    Net Investment Tax
    New
    Newsletters
    New Tax Law
    Noncompete Agreements
    Operating Loss
    Opportunity Zones
    Organize Your Finances
    OSHA
    Outsourced Accounting
    Overtime Exemption
    Padding
    Pandemic Planning
    Papers For Taxes
    Part-time Help Tax Rules
    Passwords
    Payable On Death Accounts
    Paycheck Protection Program
    Payday Changes
    Payday Frequency
    Payroll Cards
    Payroll Scams
    Payroll Taxes
    Pensions
    Personal Finances
    Power Of Attorney
    PPP Loan
    Private Tax Debt Collection
    Property Taxes
    Protecting Wealth
    QSEHRA Benefits
    R & D Tax Credit
    Real Estate 1031 Exchange
    Real Estate Held In IRA
    Real Estate Investment Trusts
    Reciprocal Agreements
    Records
    Remote Employees
    Reporting
    Retirement
    Revenue Recognition
    Reverse Mortgage
    Sales Tax
    SBA Loans
    Schedule C
    Self Employment Taxes
    Severance Pay
    Severence Pay
    Sexual Harassment
    Sharing Economy Tax Implications
    Sick Leave Rules
    Small Business Administration
    Social Media
    Social Security
    Spendthrift Trust
    State And Local Taxes
    Student Loans
    Success
    Succession Plan
    Supplemental Wages
    Tariffs
    Tax Brackets
    Tax Breaks
    Tax Changes
    Tax Debt Collection
    Tax Deductions
    Tax Forms
    Tax-Loss Harvesting
    Taxpayer First Act
    Tax Planning
    Tax Preparation
    Tax Reform
    Tax Refunds
    Tax Scams
    Trump's Tax Law
    Unemployment Tax
    W-2 Form
    W 4 Form
    W-4 Form
    W-4 Requests
    Wage Garnishments
    Wages And Overtime
    Wills And Trusts
    Withholdings

    RSS Feed

Proudly powered by Weebly