Blog Layout

IRS Issues Revenue Procedure 2015-20 to Make It Easier for Small Businesses to Adopt the Tangible Property Regulations

Feb 17, 2015

by Gregory S. Dowell


February 17, 2015 – The newly-released IRS Revenue Procedure 2015-20 removes some of the guesswork and makes it easier for small businesses to adopt the new tangible property regulations. Small businesses for this purpose are businesses with under $10 million of assets or $10 million or less of gross receipts. In general, in most cases these procedures prevent the small business from having to adopt a formal change in accounting policy when applying the new tangible property regulations. The new revenue procedure also clarifies de minimis safe harbor provision of the regulations. This new procedure is effective for tax years beginning on or after January 1, 2014.


As way of background, in 2013 and during 2014, the IRS issued regulations related to capitalizing, deducting, and disposing of costs of tangible personal property. Existing IRS Code and regulations (IRC section 446 and regulation 1.446-1) require a taxpayer to secure the consent of IRS before changing an accounting method for federal tax purposes. Furthermore, regulation 1.263(a) allows for a de minimis safe harbor to allow certain expenditures to be deducted as ordinary and necessary, rather than capitalized. The regulation also provided that a taxpayer without an applicable financial statement may elect to apply the de minimis safe harbor if, among other things, the amount paid for the property subject to the de minimis safe harbor does not exceed $500 per invoice.


Revenue Procedures 2015-20 effectively allows small business taxpayers to make changes in methods of accounting with an IRC section 481 adjustment that takes into account only amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014. This modification means that, effectively, small business taxpayers making these changes in accounting method for the first tax year that begins on or after January 1, 2014, may elect to make the change on a cut-off basis.


The option for some small businesses to choose to file a Form 3115 remains available. This may be desired to retain a clear record of a change in method of accounting or to make permissible concurrent automatic changes on the same form. However, other small business taxpayers may prefer the administrative convenience of being able to comply with the final tangible property regulations in their first tax year that begins on or after January 1, 2014, simply by filing the federal tax return. In those cases, for the first tax year that begins on or after January 1, 2014, small business taxpayers that choose to prospectively apply the tangible property regulations to amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014, have the option of making certain tangible property changes in method of accounting on the federal tax return without including a separate Form 3115 or separate statement.


A small business taxpayer is a taxpayer with one or more separate and distinct trade or business that has: (a) total assets of less than $10 million as of the first day of the tax year for which a change in method of accounting under the final tangible property regulations and corresponding procedures regarding related changes in method of accounting is effective; or (b) average annual gross receipts of $10 million or less for the prior three tax years.


The IRS also clarifies that the de minimis safe harbor does not limit a taxpayer’s ability to deduct otherwise deductible repair or maintenance costs that exceed the amount subject to the safe harbor. The safe harbor merely establishes a minimum threshold below which all qualifying amounts are considered deductible. Consistent with longstanding law, a taxpayer may continue to deduct all otherwise deductible repair or maintenance costs, regardless of amount. In addition, the existence of the de minimis safe harbor does not mean that a taxpayer cannot establish a de minimis deduction threshold in excess of the safe harbor amount, provided the taxpayer can demonstrate that a higher threshold clearly reflects the taxpayer’s income.

14 Dec, 2023
With year-end approaching, it is time to start thinking about moves that may help lower your tax bill for this year and next. This year’s planning is more challenging than usual due to changes made by the Inflation Reduction Act of 2022 and the SECURE 2.0 Act.
14 Dec, 2023
With year-end approaching, it is time to start thinking about moves that may help lower your business's taxes for this year and next.
By Greg Dowell 14 Nov, 2023
How to make doing good a little less frightening financially.
By Greg Dowell 13 Nov, 2023
Catching many businesses by surprise, this Act kicks in with filing requirements as early as January 1, 2024.
By Greg Dowell 05 Sep, 2023
Having a business fail for lack of employees was unheard of 10 years ago. The problem existed for many businesses long before the pandemic, but it certainly went to a whole new level from 2020 to the present.
By Greg Dowell 24 Aug, 2023
Improve profitability, reduce the opportunity for fraud, focus on your core business, eliminate excuses for tardy financial data - what's not to love about outsourcing your accounting?
By Greg Dowell 16 Aug, 2023
ESOPs have been around for years; they could be a solution for ownership transition.
By Greg Dowell 16 May, 2023
by Gregory S. Dowell Updated May 16, 2023 Spring is the traditional kick-off to wedding season, and thoughts quickly turn to the wedding venue, gifts, the happy couple, and, of course, the guest list. Lurking somewhere in the shadows, behind even that strange uncle you barely know, is another guest that needs to be considered: The tax impact on the newlyweds. To start, newlyweds will have two options for filing their income taxes in the year of marriage: Filing status can either be married filing jointly, or married filing separately. In the vast majority of cases, a couple will benefit with a lower overall tax burden to the couple by choosing to file married filing jointly. One of the classic cases where a couple may consider filing separately is when one spouse has significant amounts of medical expenses for the year. Medical expenses are only deductible if they exceed 7.5% of adjusted gross income; using only one spouse's income may allow a deduction to be taken if filing separately, compared to losing the medical deduction entirely if both incomes are combined by filing jointly. We previously had written about the tax trap that often occurs when two people get married, resulting often in an unanticipated balance due when the first joint tax return for the couple was filed. While President Trump’s Tax Cuts and Jobs Act (TCJA), changed the dynamics somewhat, it is still worthwhile to put pen to paper before saying “I do”. Prospective spouses have the opportunity to save money by taking income tax considerations into account before tying the knot. That’s particularly true for those who plan to marry late this year or early next year. As this article explains, from the federal income tax standpoint, some individuals marrying next year may come out ahead by either deferring or accelerating income, depending on their circumstances. Others may find it to their advantage to defer a year-end marriage until next year. For some quick background, a “marriage penalty” exists whenever the tax on a couple’s joint return is more than the combined taxes each spouse would pay if they weren’t married and each filed a single or head of household income tax return. Before President Trump’s TCJA, only the 10% and 15% married filing jointly brackets were set at twice that of the singles bracket, and so the marriage penalty effect on joint filers applied in the brackets above the 15% bracket. Beginning with the 2018 tax year, however, the TCJA set the statutory tax brackets for marrieds filing jointly-through the 32% bracket-at twice the amount of the corresponding tax brackets for singles. As a result, the TCJA eliminated any tax-bracket-generated marriage penalty effect for joint filers where each spouse has roughly the same amount of taxable income-through the 32% bracket. For example, if two individuals who each have $215,950 of taxable income file as single taxpayers for 2022, each would have a tax bill of $49,335.50, for a combined total of $98,671. If they were married, their tax bill as marrieds filing jointly would be $98,671, exactly the same amount as the combined total tax they’d pay as single taxpayers. Because the 35% bracket for marrieds filing jointly isn’t twice the amount of the singles 35% bracket, the marriage penalty effect will still apply to joint filers whose income falls in the 35% bracket. Using 2022 tax tables, two single taxpayers may each have $500,000 in taxable income, for a combined total of $1,000,000, without having any of it taxed higher than 35%. However, for marrieds filing jointly, the 35% tax bracket ends at $647,850 in taxable income, and each additional dollar of taxable income taxed at 37%. Thus, where two high-earning unmarried taxpayers with substantially equal amounts of taxable income are planning for their marriage to take place either late this year or early next, it may pay from the tax viewpoint to defer the marriage until next year. As an example, if two individuals each have $539,900 of taxable income file as single taxpayers for 2023, each would have a tax bill of $162,718, for a combined total of $325,436. If they were married before the end of the year, their tax bill as marrieds filing jointly would be $334,076, or $8,640 more than the combined total tax they’d pay as single taxpayers. If only one of the prospective spouses has substantial income, marriage and the filing of a joint return may save taxes, thus resulting in a marriage bonus. The bonus is the result of two factors: 1) the tax brackets for marrieds filing jointly cover wider spans of income than the tax brackets for taxpayers as singles; and 2) the taxable income of the lower-earning individual may not push the couple’s combined income into a higher tax bracket. In such a case, it will probably be better from the tax standpoint to accelerate the marriage into this year if feasible. There are a number of other factors that should also be taken into account when determining the effect of a marriage on income taxes of the couple. As mentioned early in this post, the first decision is to verify that filing a joint return is preferred to filing separate returns. In addition, many provisions of the tax code phase out completely (or decrease partially) as adjusted gross income increases. In a perfect world, there would only be good surprises for a newlywed couple following their wedding. To avoid any unpleasant income tax surprises, we always recommend that a newlywed couple take the time to make a projection of what their income will look like when combined as a couple, and determine what the tax bill will look like, at the Federal and State levels. After all, planning ahead, communicating with each other, discussing finances, and avoiding unpleasant surprises are some of the keys to a long marriage.
By Greg Dowell 11 Mar, 2023
Don't forget a birthday, anniversary, or any of these tax filing dates . . .
By Greg Dowell 07 Feb, 2023
The IRS asks taxpayers to wait to file 1040s if they received rebate payments from their state in 2022.
More Posts
Share by: