Important Notice on Final Repairs & Maintenance Regulations
As the new year approaches, we would like to remind and make you aware of new and final IRS regulations regarding repairs and maintenance. These regulations are related to when items should be expensed and when costs need to be capitalized. The rules are extremely in-depth and apply to nearly every business. After reading the information below, please do not hesitate to contact us with any questions or concerns you may have.
NEW CAPITALIZATION OF ASSET RULES
The new regulations provide that a business must capitalize all asset purchases greater than $500 for the year 2014. Thus any purchases of tangible assets with a life of greater than 12 months must be capitalized and depreciated by all businesses. The new regulations provide that this capitalization amount is reduced to $200 per item unless the business has:
A written accounting policy (in place at the beginning of 2014) to expense the amount paid for a tangible asset if the amount is under $500 per item/invoice or any amounts paid for tangible property with an economic useful life of 12 months or less, and
Accounted for the amount paid for the property as an expense on its books and records in accordance with the written accounting procedures.
Based on the above discussion of the new IRS regulations regarding business capitalization policies, it is our assumption that you have adopted the following asset capitalization policy:
"The business will capitalize all tangible assets with a cost greater than $500 per item, or any tangible asset with an economic useful life of more than 12 months."
If this is not accurate or you plan on using different procedures, please contact us before January 1, 2014 to inform us of the procedures you will be using.
Please note, if you have your business financial statements audited by a certified public accountant, you are able to increase the capitalization threshold in your accounting capitalization policy and expense all items under $5,000.
As previously noted, these final regulations are extensive and apply to nearly every business. The rules regarding repairs and maintenance and the need to expense or capitalize costs are very significant. In a future email blast, we will be giving you additional information on these extensive rules. It is important that you utilize all positive aspects of the new law. One of these important advantages is the de minimis safe harbor election. As a reminder, if our assumption above is not accurate, please contact us regarding the practices you will utilize. If you have any questions or concerns regarding these new laws, please contact us at your convenience and we will assist in any way possible.