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Thread: New IRS rules for those of you that do your own tax returns.

  1. #1

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    New IRS rules for those of you that do your own tax returns.

    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=====
    Attached Files Attached Files

  2. #2
    J. Austin Powers appletree's Avatar
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    Re: New IRS rules for those of you that do your own tax returns.

    Thanks for sharing Mike.

    I wish I understood all of this.
    I struggled last year after buying a home to file my own taxes...for whatever reason I was really confused even using TaxAct. Years prior I had no issues. And since I purchased the home in Oct 2013...I don't even think my taxes came into full effect last year.

    I was going to talk to a CPA at the end of last year I know through church, but never ended up doing it. I need to search through the business section of this forum and find out what a hobbyist should do. I have no formal business name and unsure if I should apply for one, if my expenses can be deducted or what. I mean I have invested probably 2k on printing and frames, plus all of my gear, lenses, equipment, etc. Have not made any profit.
    Not sure if I should even worry about any of it or if I should actually be proactive on some of it. Perhaps since it is in the past it is all moot. I have no idea....but I bet there is a few threads lying around I might be able to make sense of.

  3. #3

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    Re: New IRS rules for those of you that do your own tax returns.

    Ugh, I hate tracking capitalization/depreciation. What did they do with section 179?
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  4. #4
    Drew Wiley
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    Re: New IRS rules for those of you that do your own tax returns.

    This seems to apply to significant property improvements etc related to business expansion (to phrase it succinctly but not necessarily accurately), like a major
    studio expansion you are paying to remodel. I don't see how it affects day to day expensing of supply in typical manner we've done it all along, or ordinary
    equipment depreciation. But I'll study it some more. Just getting started with that annual nightmare. The current IRS Small Business Guide pretty much tells anyone
    what they need to know. Start there if you're just beginning, or thinking about it.

  5. #5
    J. Austin Powers appletree's Avatar
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    Re: New IRS rules for those of you that do your own tax returns.

    Quote Originally Posted by Drew Wiley View Post
    The current IRS Small Business Guide pretty much tells anyone
    what they need to know. Start there if you're just beginning, or thinking about it.
    Cool, thank you.

  6. #6

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    Re: New IRS rules for those of you that do your own tax returns.

    Quote Originally Posted by Drew Wiley View Post
    This seems to apply to significant property improvements etc related to business expansion (to phrase it succinctly but not necessarily accurately), like a major studio expansion you are paying to remodel. I don't see how it affects day to day expensing of supply in typical manner we've done it all along, or ordinary equipment depreciation. But I'll study it some more. Just getting started with that annual nightmare. The current IRS Small Business Guide pretty much tells anyone what they need to know. Start there if you're just beginning, or thinking about it.
    Drew: These are major changes and, yes, they do affect day-to-day expensing. Without a written policy, you can't expense anything over $200. There's more details: I haven't come up to speed on it yet, and don't plan to until after April 15...

    Section 179 is still there, unchanged. The difference here, is: you may find yourself capitalizing more because of the $500 limit: you would then use Sec. 179 to write all of it off in the current year.

    The practical effect for small businesses is nil, UNLESS you get audited and the agent finds adjustments that go into "closed" years (3 year statute.) Then they get to move expense into a closed year and you lose the deduction... I go through very few audits, so I'm simply repeating what I've heard from other CPAs who have clients with far greater financial resources than the small businesses that I deal with...

  7. #7
    I live in Connecticut now.
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    Re: New IRS rules for those of you that do your own tax returns.

    What is a "written policy" what does that mean?

  8. #8

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    Re: New IRS rules for those of you that do your own tax returns.

    It means you have to write it down. You aren't allowed to make it up as you go.
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  9. #9
    I live in Connecticut now.
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    Re: New IRS rules for those of you that do your own tax returns.

    Quote Originally Posted by Paul Cunningham View Post
    It means you have to write it down. You aren't allowed to make it up as you go.
    So I need to plan a year in advance what I'm going to buy and pre-plan to expense it for the following year? I don't think I'm understanding that correctly.

  10. #10

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    Re: New IRS rules for those of you that do your own tax returns.

    Take a piece of paper, write today's date on it and the following sentence: "expense all items of $500 or less." I think that will do the trick.
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