The IRS issued “final” rules known as the “repair regulations” this year. They will effect your 2014 tax return if you have any depreciable assets or if you regularly purchase materials & supplies in your line of business. The rules clarify which costs should be capitalized and which can be expensed when your business buys, makes, maintains, or improves certain fixed assets such as buildings, equipment, vehicles and machinery.
Here are three ways your business can be affected:
1. Accounting policies. You’ll need to update your accounting policies to reflect how you treat expenses for repairs, materials, and supplies, and the acquisition of assets. Having a written policy in place will help keep you in compliance with the rules. Your accounting policy must be in effect as of January 1 of each year. Contact us for a template to help you with tax compliant wording.
2. Elections. The final regulations include six elections. You’ll want to review them to learn if they are beneficial to you. For example, by choosing the “de minimis safe harbor election,” you can opt to expense the cost of property below a specific dollar amount, typically $500 but your industry standard could dictate more.
3. Form 3115. You may want to file Form 3115, Application for Change in Accounting Method, with your 2014 federal income tax return to revise certain decisions you made regarding the treatment of tangible property in prior years. Alternatively, under simplified rules recently issued by the IRS, certain small businesses have the option of applying the repair regulations to 2014 and future years without filing Form 3115.
The final repair regulations will affect every business with fixed assets on the books as well as individuals with rental properties. This law is very complex and requires a lot of paperwork to be in compliance. Our tax preparers understand the ins and outs of the new repair regulations. Please contact us to schedule an appointment so we can help you determine how to apply the rules.