Important Fixed Asset, Repairs, and Depreciation Changes Effective for 2014

Over the past several years, the IRS has been updating rules related to accounting for and the tax treatment of amounts paid for materials and supplies, capital expenditures, and repairs and maintenance, referred to as the "tangible property regulations". Although we feel the new regulations, that became effective January 1, 2014, are more favorable for most taxpayers, additional work may be required to complete your 2014 tax return. The IRS is requiring taxpayers be in compliance with the revised tax laws beginning with the 2014 tax year. Thus, you are likely required to change your method of accounting to be in compliance. Also, there are several annual elections that may need to be made with your tax return.
 
Whenever a taxpayer changes their method of calculating taxable income, the IRS deems they have a "change in accounting method" and must request the IRS approve their change by filing Form 3115. Form 3115 explains the reason for the change, the previous method used versus the new method, and reports the cumulative effect of the change on taxable income. If the adjustment is a negative income adjustment, the taxpayer takes the additional deduction on the current year return. If the adjustment results in a positive income adjustment, you are allowed to report the additional income over a four year period to minimize the tax burden. Form 3115 is required even if the change is due to change in the tax law.

If you would like a more detailed explanation of the "tangible property regulations" and "methods of accounting" we recommend visit the Tangible Property Regulations - Frequently Asked Questions portion of our website.

Based on our extensive research regarding the implementation of the new regulations and opinions from experts in our industry, the IRS expects many taxpayers to file Form 3115, Change in Accounting Method request, with their return this year. Thus, when we prepare your return this year, we may need to contact you to discuss these new regulations and how they may affect you directly. Further, if a Form 3115 is required to be filed with your return, resulting in some type of taxable income adjustment, it may be necessary to file for an extension so that we can accurately calculate the adjustment and take advantage of the expense benefit on your current year return.