Business Tax: Do You Want to Expense Your Assets?

Kohl & Company CPAs
Oct 11, 2017

Business Tax: Do You Want to Expense Your Assets Consider the Section 179, or De minimis safe harbor Election to Expense Assets

Business Tax: Do You Want to Expense Your Assets

Consider the Section 179, or De minimis safe harbor Election to Expense Assets

Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. While it doesn’t change the amount of depreciation you can take over the life of a capital purchase, it can change the timing by allowing you to deduct your purchase in the first year you place it in service.

Review these details if you’re considering depreciating your business assets under Section 179:

  • Section 179 allows deducting the expense of up to $510,000 of qualified business purchases.
  • A Section 179 deduction cannot create a loss for the business.
  • A Section 179 deduction must be for business use. If an asset is not entirely used for business, the allowance is reduced.
  • If you sell a Section 179 asset prior to the full depreciation period, you will have to record any sales proceeds as taxable income.
  • Many states limit the use of this federal shifting of depreciation.

Taking Section 179 for capital purchases can be useful, but it’s not for everyone. Using it for an immediate tax break means it’ll no longer be available for future years.

The de minimis safe harbor election

Under the final tangibles regulations, you may elect to apply a de minimis safe harbor to amounts paid to acquire or produce tangible property to the extent such amounts are deducted by you for financial accounting purposes or in keeping your books and records. If you have an applicable financial statement (AFS), you may use this safe harbor to deduct amounts paid for tangible property up to $5,000 per invoice or item (as substantiated by invoice). If you don't have an AFS, you may use the safe harbor to deduct amounts up to $2,500 ($500 prior to 1-1-2016) per invoice or item (as substantiated by invoice).

NOTE: Unlike the Section 179 Expense Election, you may expense items whether there is a profit or loss!

 

For more details, feel free to call.