The IRS has issued new rules regarding what assets can be capitalized vs. expensed. Unfortunately, these rules are complex and will probably drive more people to have their tax returns prepared by a tax preparer... not a good answer. Basically, for small businesses, you can now expense any asset purchase (camera, lens, etc. ) that is under $500. Anything over must be capitalized. You can choose to make the $500 lower, but no higher. This is effective for 2014 returns.
I have not looked at the details yet: I've told all my affected clients that their returns will be extended and we'll sort this out in the summer. These rules have changed several times over the past 1/2 year, and the IRS is still issuing FAQs, etc., so the dust hasn't settled yet. The IRS was originally going to require ALL businesses to apply for an accounting change, which is a mind-boggling process. Only several weeks ago did they back down on this...
You need to have a "written" policy that states this. I've included a sample below.
The rules are here:
http://www.irs.gov/Businesses/Small-...al-Regulations
Also, you need to attach 2 elections to your 2014 return to reflect all this. You need to continue attaching these elections every year. I've attached a PDF of what my tax software generates.
==== Accounting Policy=============
This will confirm ABC Photography Inc.'s prior informal policy which was, and continues to be that a capital asset is a unit of property with a useful life exceeding one year and a per unit acquisition cost exceeding $500. Such capital assets will be depreciated over their useful lives.
Tangible assets with a cost not to exceed $500 are expensed in the year of purchase.
Invoices substantiating such purchases are retained for a minimum of seven years for assets expensed in the year of purchase, and for the useful life of a capital asset which is subject to depreciation over a period of years.
Date:
Signed:
==end=====
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