John R. Bullis: Amount to expense purchase of personal property increased

The IRS announced recently it is OK for taxpayers to claim — as a direct expense of up to $2,500 — cost of an item of tangible personal property (i.e. cell phones, computers, equipment of all kinds).

The increase to $2,500 per item from the previous limit of $500 came mainly because many folks pointed out that $500 is less than most cell phones and computers cost. The American Institute of Certified Public Accountants (AICPA) was one of many advocates to ask for the increased cost.

That new limit is for small businesses that do not have audited financial statements. It was pointed out that large, publicly traded businesses have a $5,000 limit since they do have annual audited financial statements. The usual small business seldom has incurred the expense of full audited financial statements. The increase in the limit for small businesses just seemed only fair and reasonable to avoid a burden that large businesses do not have.

The new $2,500 per item limit is for tangible personal property purchased for tax years beginning on or before Jan. 1, 2016. However, IRS announced it would not raise the issue of a higher amount during an audit of earlier tax years. IRS also will not further pursue the issue for any tax year beginning after Dec. 31, 2011, and ending before Jan. 1, 2016, for any case pending an IRS examination, Appeals or the U.S. Tax Court.

This higher amount of equipment and other personal property purchases to be directly expensed will reduce some of the extra time spent on the accounting and tax records.

Now, purchases of a single item that costs $2,500 or less can be just recorded as an expense like “small tools and equipment” instead of recording as a fixed asset that is depreciated over several years. That means fewer items on the depreciation schedule. That may not be a big difference on the income tax return, since most small businesses can elect section 179 and claim the entire cost of the equipment type item as a special depreciation expense.

Currently, and expected to remain, there is an allowance to claim section 179 depreciation election on up to $500,000 of equipment purchased and placed in service each year.

Perhaps this is an example of when IRS listened and took appropriate action. It is too bad that only Congress can simplify our entire tax code (laws).

Did you hear? “The first nine pages of the Internal Revenue Code define income; the remaining 1,100 pages spin the web of exceptions and preferences,” said U.S. Sen. Warren G. Magnuson in the Congressional Record of the Senate on May 12, 1966.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.