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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29798
Experience:  Taxes, Immigration, Labor Relations
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What is the best way to deduct small hand tools for a small

Customer Question

What is the best way to deduct small hand tools for a small woodworking sole proprietor shop. I do a 179 deduction for the two large pieces of equipment but I have a lot of $30-$100 tools I purchased that doing a 179 seems wrong unless I can add them together as one lump sum called misc. tools?I live in NH but day job is in Vermont and money from woodworking comes from Vermont so I file a VT return along with federal. My 179 limits will be from VT right?
Submitted: 5 months ago.
Category: Tax
Expert:  Lev replied 5 months ago.

The IRS simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500
the safe harbor threshold for deducting certain capital items.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

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That actually means - you may simply deduct the cost of tools that are less than $2500 without capitalizing and without using section 179.

Here is a referenced document

https://www.irs.gov/pub/irs-drop/n-15-82.pdf

Let me know if you need any help with reporting.

Customer: replied 5 months ago.
Is the $2500.00 a total cap or cap per invoice? I use TurboTax for small business. Is there a specific form to file the de minimis safe harbor and is a lump sum of all the invoices together?
Expert:  Lev replied 5 months ago.

Per Item and per invoice.
There is no specific form.
You may just list these expenses as Other expenses.

On schedule C in Part V

Customer: replied 5 months ago.
when it asks if I have a consistent process for how I record expenses and assets I answer yes? And the asks if I want to take this as an annual election I say yes? Then I also answer yes that I have both items under 2500 and over 2500? It now asks if I made improvements to rental property of my business. My shop is attached to my house. Does this apply? I have an area called other Misc. Expenses is that where these items go?
Expert:  Lev replied 5 months ago.

I think you do track your income and expenses ? - so yes.

If your shop is treated as a separate property - that is NOT a rental property - that is a property used for business operations.

I bet that is correct area - but if you attach a form here - I will verify.

Customer: replied 5 months ago.
I added Work Pants to C part V. Do I enter all my small items here? The other shot shows areas to add expenses.
Customer: replied 5 months ago.
This look correct for entry's?
Customer: replied 5 months ago.
Ready to File. Look ok?
Expert:  Lev replied 5 months ago.

Mostly looks clear.

I am not sure where you got deduction for utilities?
Are you using a part of your home for business?
That must be separate form for that.

Also - these are screens.
I prefer to see actual tax forms.

Customer: replied 5 months ago.
Sorry about form but could not figure out how to get just that form out of software since I was in the middle of filling it out. Yes the shop is attached to the Home and is about 40% of the sf. but because of the large motors it take a large part of the utilities. Dis not see a special form to enter that. I had to file to meet deadline so I hope what i did is right. I have been very conservative on the business part in fact I have an office to do all the CAD drawings but have been afraid to take that deduction because thought might trigger an audit. Thanks for your help. I may have to hire someone to do this since it is becoming more complicated every year. Thanks for your help and I will hope everything is OK. Just got confirmation that federal efile was accepted so I guess I am all in now.
Expert:  Lev replied 5 months ago.

Ok - that explains.

So the shop is a separate stricture and that are utilities related to that structure.

No need any special form.

But you will need to depreciate the value of shop.

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