 Most of this information comes from the tax guide for small business for individuals who use Schedule C, Publication 334 Tax Year 2022, you can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're focused on line one income. Remember, in the first half of the income tax formula is an essence and income statement, but just to outline other forms and schedules flowing into these line items, one of those being the Schedule C, it having business income minus business expenses, the net business income then flowing in from the Schedule C to line one income of our income tax formula. First page of the form 1040 noting that the Schedule C generally flows into the Schedule 1, which generally flows into page one 1040 line number 8. The Schedule C is the profit or loss from business having an income statement format income minus expenses were focused here on the expense side of things and in particular the de minimis safe harbor for tangible property. So generally you must capitalize costs to acquire or produce real or tangible personal property used in your trade or business such as building equipment or furniture. However, if you elect to use the de minimis safe harbor for tangible property, you may deduct de minimis amounts paid to acquire or produce certain tangible property if these amounts are deducted by you for financial accounting purposes or in keeping your books and records. In other words, let's think about this just from a bookkeeping standpoint. You might have an expense account for supplies or an expense account for repairs and maintenance and you might run across some items where the question comes into your mind as to whether you can just expense these items when you purchase them or do you have to put them on the books as an asset in which case you would generally have to be allocating the cost over the useful life. Now from an accounting standpoint that's an accrual kind of question meaning did you consume the expense in the current time frame? If you did then it would be just an expense meaning if you bought these supplies and you used the supplies in the current time frame you would think that would be an expense same with like a repairs and maintenance type of situation but if you're purchasing something that's going to be consumed for multiple periods into the future you would think then from an accounting standpoint you would put it on the books as an asset and then depreciate it basically over its useful life. However, we can think of things that we're going to do that with that are still pretty small in terms of dollar amount so you might think yeah I bought like five years supplies of paper clips or something like that it's still pretty small in terms of dollar amount so is it really worth our time to do the more complex thing of putting it on the books as an asset and then allocating the cost over its useful life even though technically I would be using it over a long period of time so many purchases that are that are low in dollar amount even if you plan on using them for a long period of time you might be saying hey look it's not worth my time to put it on the books and capitalize it because it's in essence immaterial it's a small amount compared to my total income it's not going to have a big impact on my financial decision making and in this case on the taxes so you have a similar kind of concept here now you might be thinking hey look I'm on a cash-based method and you're talking about this accrual stuff it doesn't matter to me at all because I'm cash-based but even if you're on a cash-based system we know the tax code is going to force you to deviate from the cash-based system for large pieces of equipment and you're still going to have to put them on the books as an asset so if you buy like a forklift or something you can't just expense forklift expense typically you have to put it on the books as an asset and then use the depreciation methods to depreciate it now the thing that's kind of weird about the tax code right now is that you end up in the same spot oftentimes because if you just expense like a big piece of equipment like a like you know a forklift or a piece of office equipment that's a big piece of equipment then you would get the expense in the current time period if you're forced to capitalize it then you're going to put it on the books as an asset that you would normally depreciate over its useful life like five or seven years but they currently have the 179 deductions and and the special depreciation which may still allow you to in essence take the expense upfront so you might say well what's the point you end up in the same spot either way possibly and that might be true but the concept here is that is that do you have to put something on the books as just an expense or do you have to put it on the books as a depreciable item in the future it's likely that the tax code might change like the 179 and special depreciations because those are typically distortions that are used to stimulate the economy however it's unpopular to remove those items so you'll think they might not do it but we're in a stage where the economy is kind of overheating so you would think if it if things were running right they would actually reduce those you know at this point in time but it's not popular to do politically so it's kind of an interesting situation