Hi all, this is my first post in the REG Review group. I've skimmed through most of the recent posts, and as for the de minimis rule, I think the important thing to understand is that the “written accounting policy” applies to financial reporting, which is different from the “tax” requirements.
According to Becker Review, a company might have an “accounting policy” (financial reporting) that is to expense amounts paid for tangible property costing up to $10,000. If the company pays $50,000 for 8 desks in a given year, the company can expense the entire $50,000 since each desk costs less than the $10,000 limit ($50,000/8 = $6,250 per desk). HOWEVER, for tax purposes, the company will have to capitalize the entire amount because tax invokes the de minimis rule of $5,000 limit per desk.
$5,000 is the limit if there is an applicable FS; $500 if there is not an applicable FS. The key to remembering the difference in capitalizing versus expensing things in financial reporting versus tax reporting is that companies WANT to be able to expense more items. It reduces their taxable income. Thus, accounting rules such as the de minimis rule come into play and force companies to capitalize certain items.
@jstay – I am confused about the “less than 12 month economic life” thing. If the cost per item is over the limit (i.e. $6,350>$5,000), Becker claims the company must “capitalize all of the purchases unless their economic life is less than 12 months because the de minimis rule is not met.” This doesn't make sense to me.
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