The Tax Change You MUST Pay Attention to This Year

There's a good chance you haven't heard of the IRS's issuance of tangible property regulations, also known as "repair regulations." When it comes to tax matters impacting your business, it's likelier that the Affordable Care Act has received more of your attention.

Overlooking the final repair regulations, however, would be a mistake. If you've acquired, produced or improved tangible property, you need to know what the impact is on your business and what your next steps should be. To help you get up to speed with repair regulations as we enter tax season, I've compiled five things you need to know.

1. If you can carry it and you use it for your business, it might apply

It helps to know what applies as tangible property. One way to think about it: if you can carry it, it might apply. So work computers, desks and chairs fall into this category.

2. Even if you can't carry it, but you use it for business, it might apply

Some equipment far too large to carry also qualifies, such as machinery, leased equipment and even signs.

Noticing a pattern? If the property in question is necessary for you to conduct business, there's a good chance it qualifies.

3. If it improved your business property, it might qualify

Tangible property also refers to improvements made to buildings and manufacturing plants you own. For example, if you've repaired a bank of elevators in one of your properties, that qualifies. Other improvements/changes that qualify: HVAC systems, plumbing and electrical systems, escalators and elevators, and security systems.

4. This is largely considered good tax news

It's rare that "good" and "tax" are used in the same sentence, but the new regulations help clear up a lot of issues that caused taxpayers frustration in the past. The new regulations contain several new elections – ways to deduct or capitalize your expenditures – and are considered "taxpayer-friendly." That's code for, "You might realize notable financial benefit as a result of the new regulations."

5. You're going to want help on this one

We're way beyond 1040EZ here. While some view these changes as friendly, the myriad – and sometimes byzantine – considerations you'll have to make in leveraging the final regulations can seem far less than friendly. Fortunately, just as you don't need to know how the internal combustion engine works in order to know when to take your car into the shop, you don't need to understand or memorize tax code to know that you should meet with your tax advisor about the repair regulations as soon as possible so you both can be prepared to take advantage of any possible beneficial deductions or capitalizations.

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Illustrative scenarios

To better illustrate how repair regulations might affect you, let's conduct an interview with three local (fictional) businesspeople.

The graphic designer working out of her home on West Eleventh St.

The Graphic Designer: "I create advertisement for clients. Do the final repair regulations apply to me?"

The Tax Advisor: "That depends. Did you purchase a new computer last year?"

The Graphic Designer: "No."

The Tax Advisor: "Did you make any purchases related to the operation of your graphic design business last year?"

The Graphic Designer: "No, I didn't."

The Tax Advisor: "Check with your personal tax people, but it's likely the final regulations won't impact you."

The dentist working in Acme

The Dentist: "I treat patients all day. Do the new repair regulations apply to me?"

The Tax Advisor: "They do. For example, the dental implants you use for patients apply as tangible property. Do you own the building where your practice is located?"

The Dentist: "Yes. Do these final regulations apply in that situation?"

The Tax Advisor: "It depends. Did you make any improvements to the building?"

The Dentist: "I improved our escalators, yes."

The Tax Advisor: "Then we should definitely talk about repair regulations and how they will impact you."

The downtown entrepreneur

The Entrepreneur: "I recently started my own business and rent office space on East Front Street."

The Tax Advisor: "What line of work are you in?"

The Entrepreneur: "We make custom software for companies."

The Tax Advisor: "And when you launched your business, did you have to purchase desks, chairs and computers for yourself and your staff?"

The Entrepreneur: "I did, yes."

The Tax Advisor: "Then we'll definitely want to talk about which aspects of the revised regulations will impact you most."

There are literally thousands of possible variations on such conversations, but these scenarios hopefully give you an idea of how and why the final repair regulations need to be on your radar.

Your safest bet, of course, is to reach out to your tax advisor as soon as possible so you both can be prepared to take advantage of any possible beneficial deductions or capitalizations.

About the Author

Chris Morse is a principal at Rehmann and is the director of the tax department. His experience includes providing accounting, tax, financial planning and business consulting services to family-owned and closely-held businesses, their shareholders and officers. Contact him today at chris.morse@rehmann.com.

Published in Tax

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