Recent changes in the tax laws allow providers to deduct any individual item they purchase for less than $2,500 in one year.
The question is: where do you put these expenses on your tax return?
Before answering this question, let’s review what the $2,500 rule means.
- This 2015 rule allows you to deduct any expense under $2,500 in one year. An exception: expenses associated with a land or home improvement must be lumped together as part of the land or home improvement and deducted or depreciated according to applicable rules. See my article, “How and When You Should Depreciate an Item.”
- The $2,500 rule applies to each individual item. So, if the receipt says, “Furniture $4,000 – $2,600 sofa, $400 chair, $1,000 table” you can deduct each item in one year, except the sofa.
- There is no limit to how many items you can deduct that cost less than $2,500 in one year.
- The $2,500 amount applies to the original price, not to the amount after applying your Time-Space Percentage. So, if the item cost $4,000 and your Time-Space Percentage is 40%, the business portion is $1,600 ($4,000 x 40% = $1,600), but it’s not eligible for the $2,500 rule.
- To take advantage of this rule you must attach a statement to your tax return saying that you are electing this rule. See my article, “Have You Bought Something For Less than $2,500 This Year?”
- If an item is a repair, you can deduct it in one year, regardless of its cost, even if it’s more than $2,500. See my article, “When is a Home Improvement Now a Repair?”
- For more information, see my article, “Have You Bought Something For Less Than $2,500 This Year?”
- For expenses that individually cost more than $2,500 see my article, “How and When You Should Depreciate an Item.”
Where do you put these expenses on your tax return?
- There is no IRS rule that requires you to put expenses of less than $2,500 on any particular line on your Schedule C.
- Continue to enter expenses as you have in the past on the various lines identified on Schedule C: Advertising, Insurance, Legal/Professional services, Office expenses, Repairs and maintenance, Supplies, and so on. Don’t worry that the totals for these expense categories are more than $2,500.
- For years I’ve advised providers to use Schedule C, line 27a Other Expenses for these expense categories: Food, Toys, Household Items, Cleaning Supplies and Activity Supplies. Again, it doesn’t matter if any one of these totals more than $2,500.
- I would suggest putting expenses other than the categories as shown on Schedule C and as those I’ve identified above on Schedule C, line 27a Other Expenses. You can call them whatever you want: Equipment, Furniture, Play Equipment, Appliances, Repairs, etc. You don’t have to list these expenses individually.
- You could also identify them on line 27a as “Section 1.263(a)-1(f) De Minimis Safe Harbor Election expenses” and lump them all together as one expense.
- If you use the Minute Menu Kids Pro or KidKare software: Don’t enter items in the software under these categories unless they cost more than $2,500:
- Computer/Printer/Other/Office Equipment
- Furniture/Appliances/Play Equipment/Carpets
- Home Improvement
- Land Improvement
If you do, the software will tell you to depreciate the expense, which you don’t want to do. Instead, enter these expenses under any of the categories described previously.
- If you use TurboTax or H&R Block software, be careful! These software programs don’t clearly tell you where to enter these expenses. See my articles about these programs: TurboTax and H&R Block.
Bottom Line: It doesn’t matter what line you put these expenses on Schedule C. Be sure to attach the proper statement to your tax return to elect the $2,500 rule.
Tom Copeland – www.tomcopelandblog.com
For more information, see my 2016 Family Child Care Tax Workbook and Organizer.