Two Statements to Prepare When Deducting Expenses Under $2,500

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The recent IRS rule allowing family child care providers to deduct in one year all expenses costing less than $2,500 is a wonderful tax benefit!

See my previous article, “Have You Bought Something for Less than $2,500 This Year?”

But it comes with the requirement to file a statement with your tax return electing the rule. And it comes with a recommendation that you prepare another accounting procedure statement that you sign at the beginning of the year for your own files.

Statement to file with your tax return

To use the $2,500 rule you must file the following statement with your tax return:

“Section 1.263(a)-1(f) De Minimis Safe Harbor Election

[Your name, address, and EIN or Social Security number]

For the year ending December 31, 2016, I am electing the de minimis safe harbor under Treas. Reg. Section 1.263(a)-1(f) for my business expenses of less than $2,500.”

Your tax preparer should know to do this, but check to see if this is included in your tax return before it is sent to the IRS. Tax preparation software (Turbo Tax, H&R Block) should automatically include it, but check to be sure.

You must file this statement each year you want to take advantage of this rule.

Statement to keep with your own records

The IRS regulations say that providers should have an accounting procedure in place at the beginning of each year to take advantage of the $2,500 rule. Although the IRS regulations do not require you to put such a procedure in writing, I recommend that you do so. Here’s what it should say:

“It is my policy that I will expense in one year all items costing less than $2,500. It is also my policy that I will expense in one year all items that have a useful life of twelve months or less.

_________________________ (provider name) _____________________ (date)”

Put a copy of your signed accounting procedure in with your yearly tax records. Do not send it to the IRS with your tax return.

You should update this statement at the beginning of each year.

Again, such a written accounting procedure is not required, but I believe it is good business practice to do so. If you are audited by the IRS you don’t want to have to argue about whether you had an accounting procedure in place at the beginning of the year.

For more details on how to use the $2,500 rule, see my 2016 Family Child Care Tax Workbook and Organizer which will be available January 9, 2017.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/moneyblognewz/

My Family Child Care Tax Workbook and Organizer explains all the new tax law changes and how to fill out your federal tax forms, line by line.



Categories: Deductions, Record Keeping & Taxes

2 replies

  1. I have a question on this…Is the $2500 based on the total value or the amount that we will be deducting? For example a TV that cost $2687.48 total; TS% deduct amount is $1021.24. Can I deduct the entire amount in 2016 or does it need to be depreciated? Thank you!

    • The $2,500 rule is based on the purchase price, not the business portion. So, since the TV costs more than $2,500 you can’t use the $2,500 rule. However, if you use the TV 50% or more for your business you can deduct the business portion in one year using the Section 179 rule. If you don’t use it 50% or more for your business you can use the 50% bonus depreciation rule that would allow you to deduct half the depreciable amount in the first year and depreciate the rest over 7 years.

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