Nonprofits and capitalization threshold
MyThoughts
about setting a policy regarding the level at which purchases must be
capitalized instead of expensed. I am not an accountant or bookkeeper.
Right now, we do not capitalize any expenditures that are less than $2,500.
In fact, if we thought it would be considered reasonable, we would probably
set the level even higher than that. I'm sure the IRS has some rules or
guidelines about what should or should not be capitalized, but isn't that
primarily so businesses don't just expense capital costs to save on income
taxes? Since we don't pay income taxes, would it make sense to assume that
the IRS doesn't particularly care if we expense items that a for-profit
would be required to capitalize? We also have no need to try to make our
financial statements look better by capitalizing more items to show a higher
net income, etc.
An example would be a proprietary software program we just purchased to do
billing. The price of the software was about $1,200. I know the IRS has
some kind of guideline about capitalizing software over 3 years, but that
would imply that the software we purchased would be worth $800 after the
first year. It's really not a saleable asset that has any market value to
anyone else at this point. What we did was just expense it entirely at the
time of purchase because it is under $2,500. Again, we didn't do that to
save on income taxes because we don't pay any. And, we don't need to pump
up our financial statements to be able to borrow money from a bank, etc.
So, we think we're okay with our approach.
I don't expect anyone to answer all of these questions specifically.
However, I'd be interested in any general thoughts about why the IRS sets
guidelines regarding what can or must be capitalized, and whether those
guidelines tend to be relaxed for tax-exempt nonprofit organizations.
Bob
company where the capitalization limit is $1,000, everything below that is
expensed, including software. They have been through several IRS audits
with no problems.
"MyThoughts" <M...@MT-thought.cdr> wrote in message
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Rusty
reference to the IRS.
The idea of capitalising expenditure is to write off the cost over the
useful life of the asset. To my mind $2,500 seems high, but in the final
analysis it's up to your management what guidelines they set.
Irrespective of the amount chosen, there needs to be consistency in its
application, so that the accounts do not get distorted by chopping and
changing the rules.
--
Ken Russell
Sydney, Australia
"MyThoughts" <M...@MT-thought.cdr> wrote in message
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MyThoughts
doing is okay and that the IRS guidelines don't apply to nonprofits. But I
think we'll keep doing what we've been doing since there are no tax
consequences involved, etc.
"MyThoughts" <M...@MT-thought.cdr> wrote in message
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