Deduct as Supplies? or Fixed Assets?

by John Schachter, EA


Earlier is better, for taking tax deductions. This important general rule of tax planning means that business owners seek legitimate ways to write off purchases as soon as possible. It is already the case that equipment, furniture, most software and other assets can be written off in the year they are placed in service, but only subject to various limits and only by filling out a depreciation tax form and tracking the cost of the item on a fixed asset ledger from acquisition to disposition. Starting in 2016, if business taxpayers wish, they can treat purchased items costing up to $2,500 as supplies, generally deductible when paid, and not triggering all that paperwork.

To use this tax treatment, the taxpayer must have an accounting policy in place as of the start of the year to write off, for bookkeeping purposes as well as for tax, supply items costing $2,500 or less. The taxpayer can choose a lower threshold if desired. The accounting policy need not be written.

Adopting this policy should simplify your accounting process. Another consequence is that your balance sheet will show less in the way of fixed assets.

If you write off an item under this policy and later sell it – for example, unloading a used office desk on Craigslist – any income you receive will be taxed at ordinary rates.

You can choose the policy now and later change your mind.

At John Schachter + Associates, we help our clients make the most of business deductions, for equipment and lots more. Let us know if we can help you.