 Income tax 2022 2022 de minimis safe harbor tangible property. Let's do some wealth preservation with some tax preparation support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need then can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. 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 online one income remember in the first half of the income tax formula is in essence an income statement but just an outline other forms and schedules flowing into these line items one of those being of 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 one which generally flows into page one 1040 line number eight 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 she 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 use 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 from 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 in material 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 cashed based method and you're talking about this a cruel stuff it doesn't matter to me at all because I'm cashed based but even if you're on a cashed based system we know the tax code is going to force you to deviate from the cashed based system for large pieces of equipment and you're still gonna 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 expensed 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 gonna 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 up front 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 but that's the general idea so if it's a small so then the question is do I have to put it on the books as an asset or not so if you have an applicable financial statement you may use this safe harbor to deduct amounts paid for tangible property up to five thousand dollars per item or invoice so if you do not have an applicable financial statement you may use the de minimis safe harbor to deduct amounts paid for tangible property up to two thousand five hundred dollars per item or invoice so from a general like a cruel theory standpoint the theory standpoint would be hey look if you use this thing that's going to be used for multiple years into the future you should use the matching principle we're trying to match when you consumed it to win to when you earn the income related to the consumption and therefore you should depreciate it but from a practical standpoint we want to set a dollar limitation typically because we don't want to go through the added pain of depreciating if it doesn't really matter for us to just expense it because it's in material in essence all right amounts qualifying under this de minimis safe harbor should be included as other expenses in part five of schedule C more information for details on keeping this election and requirements for using the de minimis safe harbor for tangible property you can see chapter one of publication five three five on the IRS website other expenses you can deduct you may also be able to deduct the following expenses you can see publication five three five to find out whether you can deduct them you've got advertising obviously bank fees you would think that would be a standard kind of deduction if the bank fees were related to your business account donations to business organizations you would think be deductible the donations to business organization now you got to be a little bit careful with like charity charity kind of situations there but in any case education expenses impairment related expenses interview expense allowances licenses and regulatory fees so license and regulatory fees that are kind of related to you know what you need for credentials for your business of course moving machinery out outplace placement services penalties and fines you pay for late performance or non-performance of a contract repairs and maintenance to real or tangible personal property payment of income supplies and materials and utilities so notice when we're talking about like moving machinery that's one you've got to be a little bit careful of because again the question is is the machinery you're moving part of the machinery that you purchased or something like that in which case do you have to record it as part of the machinery unless it fits in the de minimis kind of category so that you can expense it and then supplies and materials is often an account like when you're looking at your information to do your taxes and you're trying to think are there any items that are going to be that I expense that I recorded to an expense account that should be capitalized so you might scan through like your supplies and your materials accounts and you might scan like the repairs and maintenance general ledger account the detail to see if there's like large items in there that really should be pulled out of there and and put on the books as a depreciable asset