Section 179 Deduction vs De Minimis Safe Harbor

Question

I'm self-employed in the U.S. and trying to figure out how to deduct some business expenses on for my 2015 taxes. I have some hardware and equipment expenses such as computer parts and electronics that I want to write off as business deductions, but I'd rather do direct deductions than hassle around with depreciation for items that are only worth a few hundred each. I'm trying to familiarize myself with the De Minimis safe harbor law and understand when to use it over Section 179, but I'm confused about the differences between them.

All of the items I want to deduct were purchased at $499 or less and expected to last several years. Some of them are used exclusively for my business, while others are used for both personal and business use. Examples are hard drives, monitors, and an office chair.

I was planning to deduct these purchases under Section 179. I understand for Section 179 that if an item is partially used for personal use, I only deduct the portion used for work - for example, if 60% of the chair's use is for business and 40% for personal use, I would deduct 60% of the cost.

In contrast, I can't find any rules about partial deductions for De Minimis.

Would either method of deduction be usable here? Can I use De Minimis to deduct property that is used partially for business and partially for personal use? If so, do I only deduct a percentage of the total value like with Section 179?

Answer 1

The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to.

Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation.

From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250.

The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar.

As I said - talk to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional.