Important info that may affect your 2014 tax return: Better late than never?
Just before the first filing deadline for 2014 business returns, the IRS has released a new Revenue Procedure 2015-20, which makes it easier for small businesses to comply with the final tangible property repair regulations issued in 2013. Beginning with 2014 tax returns, there is now a simplified procedure available to small businesses with assets of less than $10 million or average annual gross receipts totaling $10 million or less for the prior three years. This simplified procedure allows small businesses to change their method of accounting to comply with the repair regs, on aprospective basis for years starting on or after January 1, 2014, without having to file a Form 3115,Application for Change in Accounting Method.
The principal expenses covered by the 2013 final regulations are the costs to acquire, produce, and improve tangible property. These final regulations gave taxpayers much needed guidance on the correct treatment for various expenditures to ease the decision-making process for expensing versus capitalizing such costs. Businesses have had to assess their current accounting systems to determine whether they wanted to amend prior year returns to apply the new rules since the regs allowed retroactive application to 2012.
With Revenue Procedure 2015-20, small businesses are allowed to make accounting method changes to comply with these regs and use an IRS Code Section 481(a) adjustment that takes into account only amounts paid or incurred (and dispositions) in tax years beginning on or after January 1, 2014, without needing to file a Form 3115.
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Note: Some small business owners may still choose to file a Form 3115 in order to maintain a clear record of the change or to make certain concurrent automatic changes on the same form. In addition, it is essential to point out that no audit protection is being given for any tax years beginning prior to January 1, 2014. (This is clearly stated in the revenue procedure.) |
As mentioned, Revenue Procedure 2015-20 allows small business taxpayers to make a tangible property disposition change that only considers dispositions in 2014 and later. However, if this is done, the revenue procedure states that the taxpayer will not be allowed to make a late partial disposition election for tax years beginning prior to 2014.
For those small businesses that have already filed their 2014 federal tax returns and attached a Form 3115, the revenue procedure allows amended returns for the purpose of withdrawing the 3115.
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Note:Revenue Procedure 2015-20 is requesting comments on the $500 safe-harbor threshold. Under the final regulations, a business may deduct up to $500 of the cost of any item of property (although, if the business has an applicable financial statement, it may deduct up to $5,000). The IRS wants to know if an amount greater than $500 should be allowed, and, if so, what amount should be used instead. Furthermore, if the threshold is to be raised, the IRS needs to know the justification for a higher amount. |