Equipment can be treated in various ways due to recent tax law changes. It is an asset, which means it has to be depreciated. While it is not a part of COGS, the electricity or fuel needed to run it is.
As an asset, you have the choice to expense all or part of it. It is not an expense until you formally elect it to be one.
You may either take a Section 179 or bonus depreciation, or you may include it as a DeMinimus Election, if it meets the rule.
De Minimis Safe Harbor Election
This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.
If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.
If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.
Here are the rules you need to meet to take this election:
- You don't have an applicable financial statement (most people don't).
- You have a consistent process for how you record expenses and assets.
- You record these items as expenses on your books/records.
- The cost of each item as shown on your receipt is $2,500 or less.
