Opportunity Exists to Expense Property and Simplify Compliance Under Final Tangible Property Regulations

Oct. 24, 2013

Beginning with the 2014 tax year, taxpayers are required to adopt the recently finalized U.S. Department of the Treasury tangible property regulations, but they have the option to adopt part or all of the regulations for tax years beginning in 2012 or 2013. Under the final regulations, companies also can elect to deduct insignificant capital expenditures deducted for book purposes under a de minimis safe harbor. Taxpayers adopting the de minimis safe harbor will simplify tax compliance and minimize IRS controversy by following book determinations in lieu of analyzing each transaction for income tax purposes.

The safe harbor election is available for capital expenditures, materials, supplies, repair items, and property with an economic useful life of 12 months or less. Taxpayers elect on an annual basis to use the safe harbor by filing an election statement with their income tax return. In order to take advantage of the election, taxpayers must have written accounting procedures treating these items as deductible for book purposes by the first day of the tax year in which the safe harbor is elected. Groups of companies filing combined or consolidated financial statements may use one written policy for the entire group.

Taxpayers that elect to use the de minimis safe harbor may deduct up to $5,000 per item or invoice for amounts deducted for book purposes provided they have applicable financial statements. The maximum deductible amount is limited to $500 per item or invoice for taxpayers that do not have applicable financial statements.

Applicable financial statements include:

  • Audited financial statements filed with the Securities and Exchange Commission (SEC)
  • Audited financial statements accompanied by a report of an independent CPA
  • Financial statements that are required to be provided to the federal or state government or any federal or state agencies (other than the SEC or IRS)

The beginning-of-the-tax-year written policy is one of the most time-sensitive provisions in the regulations. Failure to have a written policy in place by the beginning of the tax year limits a taxpayer’s ability to use the safe harbor afforded by the de minimis rules.


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