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Winny Saputra
Level 1

Should I expense or depreciate equipment costs?

I have purchased a printer and cutter for about $220 total for my small business. Are these something I can just add to expenses or do I need to capitalize and depreciate since they are equipment? Is there a certain dollar amount for an equipment to be required to be depreciated instead of expensed all at once? How will this affect the tax if I sell the equipment in future? 

2 Replies
HasaniJ
Employee Tax Expert

Should I expense or depreciate equipment costs?

The IRS recently made adjustments as far as the value that can be immediately expensed.  See more below:

 

Note: Effective for taxable years beginning on or after January 1, 2016, the Internal Revenue Service in Notice 2015-82PDF increased the de minimis safe harbor threshold from $500 to $2500 per invoice or item for taxpayers without applicable financial statements. In addition, the IRS will provide audit protection to eligible businesses by not challenging the use of the $2,500 threshold for tax years ending before January 1, 2016 if the taxpayer otherwise satisfies the requirements of Treasury Regulation § 1.263(a)-1(f)(1)(ii).

You can find more inforamtion HERE

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Opus 17
Level 15

Should I expense or depreciate equipment costs?

If you expense the items, then your "cost basis" is zero (cost basis is, roughly speaking, the amount of already-taxed dollars invested in something).  When you sell something with a zero cost basis, the entire proceeds will be taxable business income.  

 

For various reasons that I don't really want to take the time to delve into, expensing small items that fall under the safe harbor will almost always be better than listing them as assets and depreciating them, even though you may have to report some taxable income if you sell the (used) items later.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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