Late in 2013, long awaited final tangible property regulations were issued by the IRS. The regulations apply to any industry that has expenses associated with acquiring, producing or improving tangible assets. In prior years, the IRS often challenged taxpayers when it came to expensing capital expenditures. After 2013, the IRS will not be challenging the expensing of de minimus amounts if a taxpayer complies with the final regulations.

Not surprisingly, the final regulations are complicated, cumbersome and apply to most businesses.

At the core of the regulations is the capitalization policy that your organization has in place. If you do not already have a written policy, you should consider implementing one for the 2014 tax year. New safe harbor elections are available annually to expense purchases below a certain threshold, but this election may be made on your tax return only if the written policy is in place.

Please contact your KLR tax advisor for a template of a capitalization policy.

While the regulations are effective on January 1, 2014, taxpayers may benefit from retroactively applying certain portions of the final regulations to 2012 and 2013. This would require filling a request for a change in accounting method from the IRS as well as additional tax filings. The request and the additional filings can be fairly expensive. It is important to make sure the economic benefit of the accounting method change is worth the cost.

If you have any questions about this topic and how it applies to your organization, please email trustedadvisor@kahnlitwin.com or your Tax Advisor.