Page 64 - Small Business Taxes

16:31 - 2-Feb-2023
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Fileid: … tions/p535/2022/a/xml/cycle01/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
records for 2022 in accordance with this policy. erwise be treated as currently deductible repair Deduction for qualified business income.
If you elect the de minimis safe harbor in your costs. For tax years beginning after 2017, you may be
tax returns for your 2022 tax year, you can de- entitled to take a deduction of up to 20% of your
duct the cost of each $2,000 computer. Election to capitalize repair and mainte- qualified business income from your qualified
nance costs. You can elect to capitalize and trade or business, plus 20% of the aggregate
Improvements depreciate certain amounts paid for repair and amount of qualified real estate investment trust
maintenance of tangible property, even if they (REIT) and qualified publicly traded partnership
Generally, you must capitalize the costs of mak- do not improve your property. To qualify for this income. The deduction is subject to various lim-
election, you must treat these amounts as capi-
itations, such as limitations based on the type of
ing improvements to a business asset if the im- tal expenditures on your books and records your trade or business, your taxable income,
provements result in a betterment to the unit of used in figuring your income. If you make this the amount of W-2 wages paid with respect to
property, restore the unit of property, or adapt election, you must apply it to all repair and the qualified trade or business, and the unad-
the unit of property to a new or different use. maintenance costs of tangible property that you justed basis of qualified property held by your
treat as capital expenditures on your books and trade or business. You will claim this deduction
Some examples of improvements include records for this tax year. To make the election on Form 1040 or 1040-SR, not on Schedule C.
rewiring or replumbing of a building, replacing to treat repairs and maintenance as capital ex- Unlike other deductions, this deduction can be
an entire roof, increasing the production output penditures, attach a statement titled “Section taken in addition to the standard or itemized de-
of your equipment, putting an addition on your 1.263(a)-3(n) Election” to your timely filed origi- ductions. For more information, see the Instruc-
building, strengthening the foundation of a nal tax return (including extensions) and include tions for Form 1040.
building so you can use it for a new purpose, or your name and address, TIN, and a statement
replacing a major component or substantial that you elect to capitalize repair and mainte- Personal Versus Business
structural part of a machine. nance costs under section 1.263(a)-3(n). You
must treat these amounts as improvements to Expenses
However, you may currently deduct the your tangible property and begin to depreciate
costs of repairs or maintenance that do not im- these amounts when the improvement is placed Generally, you cannot deduct personal, living,
prove a unit of property. This generally includes in service. or family expenses. However, if you have an ex-
the costs of routine repairs and maintenance to pense for something that is used partly for busi-
your property that result from your use of the Capital Versus Deductible ness and partly for personal purposes, divide
property and that keep your property in an ordi- Expenses the total cost between the business and per-
nary, efficient operating condition. For example, sonal parts. You can deduct the business part.
deductible repairs include costs such as paint-
ing exteriors or interiors of business buildings, To help you distinguish between capital and de- For example, if you borrow money and use
repairing broken windowpanes, replacing ductible expenses, different examples are given 70% of it for business and the other 30% for a
worn-out minor parts, sealing cracks and leaks, below. family vacation, you can generally deduct 70%
and changing oil or other fluids to maintain busi- of the interest as a business expense. The re-
ness equipment. Motor vehicles. You usually capitalize the maining 30% is personal interest and is gener-
cost of a motor vehicle you use in your busi- ally not deductible. See chapter 4 for informa-
Routine maintenance safe harbor. If you ness. You can recover its cost through annual tion on deducting interest and the allocation
determine that your cost was for an improve- deductions for depreciation. rules.
ment to a building or equipment, you can de- There are dollar limits on the depreciation
duct your cost under the routine maintenance you can claim each year on passenger automo- Business use of your home. If you use part
safe harbor. Under the routine maintenance biles used in your business. See Pub. 463 for of your home for business, you may be able to
safe harbor, you can deduct the costs of an im- more information. deduct expenses for the business use of your
provement that meets all of the following crite- Generally, repairs you make to your busi- home. These expenses may include mortgage
ria. ness vehicle are currently deductible. However, interest, insurance, utilities, repairs, and depre-
• It is paid for recurring activities performed amounts you pay to improve your business ve- ciation.
on tangible property. hicle are generally capital expenditures and are To qualify to claim expenses for the busi-
• It arises from the use of the property in recovered through depreciation. ness use of your home, you must meet both of
your trade or business. the following tests.
• It keeps your property in an ordinary, effi- Roads and driveways. The cost of building a 1. The business part of your home must be
cient operating condition. private road on your business property and the
• You reasonably expect, at the time the cost of replacing a gravel driveway with a con- used exclusively and regularly for your
trade or business.
property is placed in service, to perform crete one are capital expenses you may be able
this activity: to depreciate. The cost of maintaining a private 2. The business part of your home must be:
– For buildings and building systems, road on your business property is a deductible a. Your principal place of business;
expense.
more than once during the 10-year pe-
riod after you place the building in Tools. Unless the uniform capitalization rules b. A place where you meet or deal with
service; or apply, amounts spent for tools used in your patients, clients, or customers in the
– For other property, more than once business are deductible expenses if the tools normal course of your trade or busi-
during the class life of the particular have a life expectancy of less than 1 year or ness; or
type of property. For class lives, see they cost $200 or less per item or invoice. c. A separate structure (not attached to
Revenue Procedure 88-57, 1987-2 your home) used in connection with
C.B. 674. Machinery parts. Unless the uniform capitali- your trade or business.
Costs incurred during an improvement. zation rules apply, the cost of replacing You generally do not have to meet the ex-
short-lived parts of a machine to keep it in good
You must capitalize both the direct and indirect working condition, but not to improve the ma- clusive use test for the part of your home that
costs of an improvement. Indirect costs include chine, is a deductible expense. you regularly use either for the storage of inven-
repairs and other expenses that directly benefit tory or product samples, or as a daycare facility.
or are incurred by reason of your improvement. Heating equipment. The cost of changing Your home office qualifies as your principal
For example, if you improve the electrical sys- from one heating system to another is a capital place of business if you meet the following re-
tem in your building, you must also capitalize expense. quirements.
the costs of repairing the holes that you made in • You use the office exclusively and regu-
walls to install the new wiring. This rule applies larly for administrative or management ac-
even if this work, performed by itself, would oth- tivities of your trade or business.
Chapter 1 Deducting Business Expenses Page 5