A significant change in tangible property regulations could offer both new opportunities and considerations for doctors of optometry as they file returns for the 2014 tax year.
One year ago, the Internal Revenue Service (IRS) and Department of Treasury created new guidelines for income tax treatment of expenditures for tangible personal or real property. These regulations affect taxpayers who use tangible property in their business.
The new tangible property regulations (TRPs) provide guidance on the capitalization and depreciation of capital expenditures, and the treatment of materials and supplies. This presents an opportunity to write off all, or a portion, of an asset when disposed.
Taxpayers who own significant depreciable capital assets, expend funds on repairs and maintenance, and/or materials and supplies, could be facing potential difficulties or opportunities as it relates to them personally.
To obtain these benefits, a significant amount of "one-time" work with related IRS tax filings is necessary and must be done as part of the tax year 2014 tax return filing process.
According to Robert L. Tobey, a partner at Perelson Weiner LLP CPA, this is a major change affecting doctors of optometry or any professional who owns expensive equipment and/or a building. That's why it is imperative for doctors to discuss these regulations with their tax consultants.
Making use of new regulations
The regulations seek to provide some clarification to taxpayers about whether business expenditures of tangible property are deductible or must be recovered through depreciation over time—a distinction between capitalized costs versus expense costs.
Prior rules delineated expense costs as deductible for the purpose of keeping property in ordinary operating condition over a probable useful life, while capital expenditures materially increase the value and appreciably prolong the life of property.
Ryan P. Hayes, CPA, AOA Chief Financial Officer, says to think of the distinction in terms of a vehicle. Regularly scheduled vehicle maintenance is deductible, but rebuilding the engine to prolong its useful life is considered capital.
These new regulations help taxpayers to classify property as deductible materials and supplies, and provide guidelines for identifying generally capitalized costs, in addition to a more precise definition of capitalized improvements.
"It is important to have a conversation with your accountant when filing your 2014 return to potentially avoid missing this time-sensitive opportunity," Hayes says.