Tax season is substantially trickier in 2015 for many small-business owners, thanks to now-mandatory IRS rules that aim to clarify when owners who repair or purchase property or equipment can deduct that cost. (Previously, taxpayers could choose to follow the rules.)
The regulations cover a wide variety of situations. “It’s a very technical area,” says John W. Roth, who is the senior federal tax analyst at Wolter Kluwer Tax & Accounting.
As an illustration, Roth says that if you owned an apartment building that has five air conditioning units and one broke, then you could deduct immediately the cost of replacing that single unit. However, if you had to replace three units, then IRS might say, ‘That’s more major now. You’ve extended the life of the HVAC system,” Roth says. Consequently, you have to depreciate the cost over several years. (Roth cautions that each situation is unique.)
In February 2015, after pressure from tax professionals and others, IRS eased the rules for certain small businesses. Now qualifying small businesses don’t have to revisit tax years prior to 2014 to comply with the rules, and a form that had been required—Form 3115—now is optional. Qualifying small businesses generally are those that have assets of $10 million or less at the beginning of the tax year or have average annual receipts of $10 million or less for the 3 prior tax years. (At press time, IRS was contemplating further changes to its rules.)
“The rules are still quite complex,” says Michael N. Miller, who is the managing partner at accounting firm Miller Ward. Before IRS eased the rules, Miller recommended small-business owners to file an extension to ensure that they had time to comply. Now, he says, small businesses that qualify for the exemption still should speak with their accountants because of the rules’ complex nature, but they likely can file on time.