Expensing vs. Capitalizing

Kevin Shaw, CPA

Shaw & Associates, CPAs

In late 2015, the Internal Revenue Service made a small change to the new repairs and maintenance regulations that has a significant impact on small businesses. After intense lobbying from the American Institute of Certified Public Accountants, the IRS agreed to change the amount that a non-audited company can establish as a de minimus amount of capital assets that can be directly deducted from $500 to $2,500. This means any single capital asset that is less than $2,500 does not have to be capitalized and can be deducted as an operating expense. For example, if you buy five computers for $5,000, but each one is less than $2,500, the entire purchase can be expensed. This is a very positive step from an income tax perspective.

Interestingly, however, this has created a bit of an administrative headache for our clients that live in a county that has a business personal property tax. Generally, the de minimus amounts that counties establish for taxing business personal property are far less than the $2,500 that IRS has established. For instance, in Larimer County, the county de minimus amount is $350. Thus, businesses in Larimer County have to establish a system that allows them to deduct the amounts that the IRS allows to be deducted, but still track those items so that the business personal property tax declarations are correct.

We are recommending that our clients do the following:

• First, create a written policy that states all assets under $2,500 will be expensed.
• Second, continue to record any asset between $350 and $2,500 as a capital asset in their books, just like any asset greater than $2,500. At the end of the year, as part of the income tax preparation process, we will record a journal entry to reclassify the total amount of all the assets under $2,500 to an expense account. 

This will mean that all of these assets will still be recorded in one account to provide the information needed to properly update the county business personal property tax declaration statement, but still allow the client to expense these assets for income tax purposes.
Finally, and most important, since assets under $2,500 will not be on a federal depreciation schedule, it is important that the client annually review the county’s property schedule to make sure they identify any assets that they no longer possess. Remember, as long as these assets are on the schedule, the county may assess a property tax. In the past, we would confirm with the client what assets to remove from the federal depreciation schedule, which would also be used to update the business personal property declaration. Now, since the assets less than $2,500 won’t be on the federal depreciation schedule, the county schedule will need to be reviewed.

Of course, a good change such as the IRS change, can still have other ramifications. If you have any questions do not hesitate to contact us at (970) 223-0792 or send an email to info@kevinshawcpa.com.

Kevin’s Korner

In celebration of our 20th year in business and the upcoming Valentine’s Day holiday, I thought it would be fun to share the 20 things my staff loves about working in this business. Check out the list at the link below!

1. Our clients
2. Our team
3. Having the opportunity to make a difference in peoples’ lives
4. Being able to take the complex and translate it to more common language
5. Our hard-working yet light-hearted work environment
6. Jeans for charity days
7. Constant opportunities to learn new things
8. Our flexible boss who always makes the staff feel valued as part of the team (the staff got bonuses for this comment)
9. The high level of attention to detail that this work involves (it allows us to nurture our meticulous personalities)
10. The fabulous non-profits we get to work with
11. The variety of industries of our business clients: from real estate developers to veterinarians to historic gun engravers
12. Our beautiful office
13. The longevity of many of our client relationships, and getting to know many of them personally and consider them our friends
14. Being a part of helping businesses take off and succeed
15. The opportunity to work with so many people in our community
16. The flexibility in where, when, and how each of us work
17. There is a high demand for the work we do
18. Being able to work in such a wonderful and vibrant business community as Fort Collins
19. The feeling of educating and empowering someone to better understand and manage their business
20. April 16th!

Anniversary – Marcy Palm

We would like to extend our best wishes to Marcy Palm on celebrating her 11 year anniversary of service with Shaw & Associates. We’ve always been impressed with Marcy’s enthusiasm and dedication for her work.

Her talent and abilities have earned her the title of Accounting Manager, where she mentors our staff and clients on a day-to-day basis. Marcy truly deserves her success, and with such efforts we are sure she will continue to earn more in the future. Congratulations on your anniversary and we look forward to the next 11 years with Shaw & Associates!

Community Events

Denim Day Charity- Project Self-Sufficiency

Every quarter Shaw & Associates picks a charity to donate to with “Denim Day”, where employees donate $5 every time they wear jeans to the workplace. This quarter we are excited to be supporting Project Self-Sufficiency and the work they do to help single parents realize their dreams for financial independence. To learn more about this great organization, please visit their website.

Boys & Girls Clubs of Larimer County- 2016 Youth of the Year Breakfast

Growing GREAT Futures!

Thursday, February 18, 2016
7:00am – 8:30am at the Embassy Suites Loveland Hotel & Conference Center

Please join the Boys & Girls Clubs of Larimer County at the 2016 Youth of the Year Breakfast to celebrate their outstanding Boys & Girls Clubs members.

Interested in sponsoring? Please contact Jenna Riedi at 970-372-4270 or jriedi@bgclarimer.org

OpenStage- The North Plan

Hapless Carlton Berg is a mid-level bureaucrat from the U.S. State Department with a price on his head. After a ruthless faction seizes power in Washington, the unlikely hero flees to the Ozarks town of Lodus with the new regime’s top secret Most Wanted list.

The North Plan opens Saturday Feb. 20th and plays through Saturday March. 19th. Please contact our office for free tickets to attend!