New Tax Rules on Assets

Beginning January 1, 2014, the IRS is implementing new tax laws that could permit more same-year deductions in favor of longterm, multiyear depreciation. Treasury Decision 9636 offers guidance on what items bought by a company can be deducted immediately and what purchases are considered a capital good that should be depreciated over a period of years.

CPA Christopher Bradburn notes, “If you can deduct it immediately, you’ll recover the expenditure faster. Otherwise, it could take several years to recoup it.”

The determination of whether an expense may be deducted as a repair or must be capitalized generally requires an examination of all of a taxpayers’ particular facts and circumstances, according taxguideonline.com

Analysis from A Katz, Sapper & Miller determined publicly traded firms that have to file an annual 10-K report with the Securities and Exchange Commission or a privately held firm that pays for a certified, audited annual financial statement and has a written policy in place on deductions and depreciation are in a position to more aggressively expense purchases. As per the de minimis safe harbor terms, companies can write off items bought worth $5,000 each in the same year. So if a carrier buys 100 tablets for $500 each, he or she can deduct the entire $50,000 that same year.

TD 9636 also divides businesses into three types of taxpayers based on the sophistication of the company’s financial reporting.

If a carrier does not conduct an annual certified audit but has a written depreciation-deduction policy, the cap falls to $500 per item, instead of $5,000. Lastly, the cap for companies without a written policy on deductions and depreciation is $200.

For the majority of larger carriers that have written policies, the clarification of the tax rule is not likely to change their accounting practices. Smaller carriers may feel the effect more than larger carriers, especially if they have never taken the time to establish a written policy before now.

Terry Croslow, Venture Express chief financial officer, admits, “I’ve been rewriting our policy to take advantage of the de minimis rule and keeping an eye out for items to capitalize, but I think there’s a lot of lost productive time spent to comply.”