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The vast majority of tools you can expense the year you buy them That is not true in the U.S. All capital assets must be depreciated. This includes all tools a

The vast majority of tools you can expense the year you buy them That is not true in the U.S. All capital assets must be depreciated. This includes all tools and equipment except for very short life consumables (< 1 year).

lazide 2y ago
No one sane is depreciating hand tools or anything smaller/less valuable than a bobcat. At least for businesses that aren’t doing millions of dollars worth of them. Why do you think they should? Care to quote a section of the tax code? No one, including the IRS, wants to deal with mountains of BS paperwork over small stuff like this. For a description [https://www.trustbgw.com/blog/2016/07/08/capitalize-fixed-assets-not-question#:~:text=Fixed%20assets%20are%20typically%20expensive,the%20minimum%20of%20one%20year https://www.trustbgw.com/blog/2016/07/08/capitalize-fixed-as....], “To determine when to expense and when to capitalize, consider both the de minimus rule and the useful economic life. The de minimis rule allows you to expense any item that may potentially be capitalized so long as said expense (or the sum of related expenses) does not significantly distort your bottom line. In other words, these expenses cannot make up a large percentage of your total expenses, subsequently providing you with an extraordinarily low income. A strong metric to follow is that the sum of the expenses should be less than 0.1% of your gross receipts for the year, and/or 2% of your total depreciation and amortization expense for the year. Any item that will retain no value after 12 months may be expensed. Do note that the IRS may frown upon deductions that appear to take advantage of end-of-year timing. If you incur an expense in December and then consume the item in January, you may need to argue that the deduction did not distort your bottom line in order to take it.“
- jncfhnb 2y ago
  There is no paperwork involved in depreciating a piece of furniture over a standard schedule. You seem to be of the belief that you are required to show documentation tracking individual assets. That’s not true any more than proving the payment actually occurre as for expenses. The de minimus rule is, as your own quote indicates, for a tiny, tiny subset of your assets.
  - lazide 2y ago
    You need to track and document assets in your books to depreciate them, and in the event of an audit you need to substantiate it. That is paperwork. Unless your tax folks are just yolo’ing amounts into the appropriate fields in your taxes anyway, in which case you’ve got bigger problems. You are correct that it doesn’t necessarily require going out and tracking say every individual desk. But to depreciate it, you would need to be able to show you bought x desks for y $$ (and those were reasonable business expenses), including receipts, and if the IRS got worked up, they might demand to see said desks. Which if you had no idea where they were, is going to be hard eh? And then you need to track them over the period of time you’re depreciating them (and how much was depreciated). Which for a small business is not worth the hassle at all. And it is highly unlikely the amount they spent on said desks is not de minimus. If you are IBM or sprint or whatever? Then sure. That is why they have massive accounting departments, asset tag everything, etc. Even they don’t bother with hand tools and the like for tax purposes though. they can’t do things the easy (and legal) way.

lazide 2y ago

No one sane is depreciating hand tools or anything smaller/less valuable than a bobcat. At least for businesses that aren’t doing millions of dollars worth of them. Why do you think they should? Care to quote a section of the tax code? No one, including the IRS, wants to deal with mountains of BS paperwork over small stuff like this. For a description [https://www.trustbgw.com/blog/2016/07/08/capitalize-fixed-assets-not-question#:~:text=Fixed%20assets%20are%20typically%20expensive,the%20minimum%20of%20one%20year https://www.trustbgw.com/blog/2016/07/08/capitalize-fixed-as....], “To determine when to expense and when to capitalize, consider both the de minimus rule and the useful economic life. The de minimis rule allows you to expense any item that may potentially be capitalized so long as said expense (or the sum of related expenses) does not significantly distort your bottom line. In other words, these expenses cannot make up a large percentage of your total expenses, subsequently providing you with an extraordinarily low income. A strong metric to follow is that the sum of the expenses should be less than 0.1% of your gross receipts for the year, and/or 2% of your total depreciation and amortization expense for the year. Any item that will retain no value after 12 months may be expensed. Do note that the IRS may frown upon deductions that appear to take advantage of end-of-year timing. If you incur an expense in December and then consume the item in January, you may need to argue that the deduction did not distort your bottom line in order to take it.“

jncfhnb 2y ago
There is no paperwork involved in depreciating a piece of furniture over a standard schedule. You seem to be of the belief that you are required to show documentation tracking individual assets. That’s not true any more than proving the payment actually occurre as for expenses. The de minimus rule is, as your own quote indicates, for a tiny, tiny subset of your assets.
- lazide 2y ago
  You need to track and document assets in your books to depreciate them, and in the event of an audit you need to substantiate it. That is paperwork. Unless your tax folks are just yolo’ing amounts into the appropriate fields in your taxes anyway, in which case you’ve got bigger problems. You are correct that it doesn’t necessarily require going out and tracking say every individual desk. But to depreciate it, you would need to be able to show you bought x desks for y $$ (and those were reasonable business expenses), including receipts, and if the IRS got worked up, they might demand to see said desks. Which if you had no idea where they were, is going to be hard eh? And then you need to track them over the period of time you’re depreciating them (and how much was depreciated). Which for a small business is not worth the hassle at all. And it is highly unlikely the amount they spent on said desks is not de minimus. If you are IBM or sprint or whatever? Then sure. That is why they have massive accounting departments, asset tag everything, etc. Even they don’t bother with hand tools and the like for tax purposes though. they can’t do things the easy (and legal) way.