Can you come up with 3 issues that Ted faces in this problem and include the sec

Question

Can you come up with 3 issues that Ted faces in this problem and include the sections (citations) you found the answers?

Ted Jones is planning on purchasing a lot of “materials and supplies” and “equipment” in 2016 and is wondering how he should track these expenses, he might not use all of the supplies until 2017. He heard that he can make a de minimis safe harbor election of $500 (or maybe it was $2,500, he does not remember), which would allow him to expense these items (versus tracking when he “uses” a supply or capitalizing his equipment). He is wondering if he can pick and choose the items he wants to expense using this rule. He is also asking if it is a permanent election and what happens when he wants to sell the item (will he have depreciation recapture, will it be ordinary income or capital gain upon the sale). Partial list of research aids: Reg § 1.263(a)-1(f) Reg § 1.162-3 § 1245

Explanation / Answer

3 issues:

Problem of tracking expenses: T is wondering of tracking, because all he expensed for supplies might not be used until the next year (which is 2017). The section which gives the answer is 1.162-3.

Problem of picking and choosing expensed items: He is aware of the section but doesn’t know how to use it for item selection. The section which gives the answer is 1.263(a)-1(f).

Problem of understanding the duration: He wants to know the duration of election of section. It requires for depreciation adjustment and income treatment. The section which gives the answer is 1245.

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