Many business owners have an idea about how things should be and make decisions based on that idea. There are many tax reasons for a plan.

 

The Internal Revenue Code requires a written plan for everything from de minimis supplies to employee benefits to corporate reorganizations.

By having a plan, the IRS believes taxpayers will act consistently, treat others fairly, and also avoid taking advantage of taxpayer-friendly rules.

 

If a taxpayer has a capitalization policy, such as “expense items less than $200”, the IRS generally respects the policy. The $200 example depends on the size of the taxpayer’s business. By having and following the plan, the taxpayer will have a consistent treatment for its operations and its accounting.

 

Tomorrow, we’ll talk about how the Internal Revenue Code limits some common ideas.

 

 

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