USA Capitalizing Equipment

[Jason Taylor]

Hello,

If I am financing equipment for under $2,500, do I need to capitalize it or expense it out based on the $2,500 de minimis safe harbor election.

Thanks!

 

[Tyson]

First decide on a threshold between $500 and $2,500 that your business will use to determine whether something should be capitalized or expensed. Once that threshold is decided, check to see If your equipment is lower or higher than that threshold. If it is lower then expense it, if it is higher then capitalize it.

 

[Jason Taylor]

Thanks! What about a lease on equipment? If it is considered a capital lease but under $2,500, do I capitalize?

 

[DTA93433]

Presuming that you have eligible property a taxpayer can elect De Minimis Safe Harbor Election -- § 1.263(a)-1(f) if (a) the taxpayer has an "annual financial statement" (AFS), (b) the taxpayer has [at the beginning of the tax year] written accounting procedures treating as expense (for non-tax purposes) costs below a certain threshold, or with an economic life of 12 months or less, (c) the taxpayer treats the same item(s) as expensed on the AFS as well as the tax return, and (d) an amount that does not exceed $5,000.

If the taxpayer does not have an AFS (annual financial statement), then the threshold is $500 or less. An AFS (annual financial statement) is normally an audited statement of some kind. It can also include SEC filings (10-K), any required filings to any State government or agency, and any other federal agency (other than the SEC or IRS). The key here is whether or not you have written accounting procedures.