What expense category is Plants?

Note on IRS Publications: Guidance on the tax treatment of plants varies depending on their use (inventory, landscaping, agriculture, etc.). IRS Publication 946 (How To Depreciate Property) discusses landscaping as land improvements and specific rules for certain agricultural plants. Publication 334 (Tax Guide for Small Business, 2024) covers inventory/Cost of Goods Sold and general business expenses like maintenance. Publication 535 (Business Expenses, 2022) covers specific rules like reforestation costs.

Plant-related expenses in a business can range from inventory for resale to office decoration or landscaping. The correct tax treatment depends heavily on the specific purpose and nature of these costs.

How the IRS Views Plant Expenses

The IRS doesn't have a single category for "plants." Treatment depends on the plant's role in the business:

1. Inventory: Plants grown or purchased for resale (like by nurseries or florists) are treated as inventory, with costs recovered through Cost of Goods Sold (COGS).
2. Landscaping/Improvements: Significant landscaping (trees, shrubs) added to business property is generally considered a Land Improvement, which is a capital asset depreciated over time.
3. Maintenance: Costs to maintain existing landscaping may currently be deductible for repairs/maintenance.
4. Office Decor: Small plants for general office decor aren't explicitly addressed as deductible business expenses in the provided documents and may be scrutinized for business necessity.
5. Specialized Cases: Certain agricultural plants (fruit/nut bearing) and reforestation efforts have unique depreciation or amortization rules.

Relevant IRS Publications:

• Publication 946 (How To Depreciate Property): Details depreciation for land improvements (including landscaping) and rules for certain agricultural plants. 
• Publication 334 (Tax Guide for Small Business, 2024): Covers inventory/COGS and general Repairs and Maintenance.
• Publication 535 (Business Expenses, 2022): Includes rules for specialized Reforestation Costs.

What Expense Category Should Plant Costs Fall Under?

For Internal Accounting: You might use categories like:

1. Inventory (for resale stock)
2. Landscaping / Capital Improvements
3. Repairs & Maintenance (for upkeep)
4. Office Supplies or Decor (for small office plants)

For Tax Purposes (IRS Classification):

1. Inventory / Cost of Goods Sold: For plants held for sale.
2. Land Improvements (Asset Class 00.3): Capitalize and depreciate significant landscaping.
3. Repairs and Maintenance Expense: For the upkeep of existing landscaping/plants that don't add significant value or life.
4. Supplies/Other Expense: Potentially for very low-cost, incidental decor plants if considered ordinary/necessary and potentially qualifying under the De Minimis Safe Harbor, but deductibility isn't guaranteed.
5. Reforestation Costs: Specific amortization rules apply.

Plant Expense Use Cases and Tax Categorization

1. Nursery/Florist purchasing plants for resale: Cost included in Inventory, recovered through Cost of Goods Sold.
2. Installing substantial new landscaping (trees, shrubs, beds) around a business building: Capitalize as Land Improvements (Asset Class 00.3) and depreciate (typically 15-year GDS recovery period).
3. Paying for weekly lawn mowing and care of existing business landscaping: Deductible Repairs and Maintenance Expense.
4. Buying a few small potted plants for the office reception area: Treatment is less clear in IRS documents. It might be considered Office Supplies/Decor (potentially deductible if ordinary/necessary and maybe under De Minimis safe harbor if the criteria is met) or potentially non-deductible if primarily aesthetic.
5. Planting trees for commercial timber production: Treated under specific Reforestation Costs rules (potential limited deduction and 84-month amortization).

Categories to Avoid While Categorizing Plants for Tax Purposes

1. Expensing Significant Landscaping Immediately: Major landscaping projects that improve the property are capital improvements (Land Improvements) and must be depreciated, not expensed in the current year.
2. Deducting General Office Decor Plants Without Business Necessity: While some resources might suggest treating small office plants as deductible supplies, the IRS requires expenses to be ordinary and necessary for the business. The deductibility of purely decorative items can be questionable unless tied to a specific business function or image requirement demonstrated as common and accepted in your industry.
3. Adding Landscaping to Land Basis (if depreciable): Landscaping closely associated with depreciable property (like a building) should be treated as a depreciable Land Improvement (15-yr GDS), not added to the non-depreciable basis of the land itself. Only landscaping not tied to depreciable assets (like around the outer border of a lot) might be added to the land's basis.

Key Considerations for Classifying Plant Expenses

1. Purpose: Is the plant for resale (inventory), a significant property improvement (landscaping), upkeep (maintenance), or decoration?
2. Scale and Cost: A large landscaping project is treated differently than buying a small desk plant. Consider the De Minimis Safe Harbor for low-cost items if applicable.
3. Business Necessity (for Decor): Be prepared to justify purely decorative plants as ordinary and necessary for your specific business if claiming a deduction.
4. Land Improvements vs. Land: Understand when landscaping costs are depreciable improvements versus non-depreciable additions to land basis.
5. Record-Keeping: Keep invoices from nurseries, landscapers, and maintenance services, detailing the work done or items purchased.

Tax Implications of Plant Expenses

1. Inventory: Costs are recovered through Cost of Goods Sold when the plants are sold.
2. Land Improvements: Costs are capitalized and depreciated, typically using MACRS GDS over a 15-year recovery period.
3. Maintenance: Costs are generally deductible as ordinary business expenses in the year paid or incurred.
4. Office Decor: May be deductible as supplies/other expense if ordinary, necessary, and potentially meeting De Minimis Safe Harbor rules; otherwise, potentially non-deductible.
5. Reforestation/Agricultural: Subject to specific, separate rules for deduction/amortization/depreciation.

How Fyle Automates Expense Categorization and More!

Fyle simplifies managing various types of plant-related expenses and associated business card spending.

1. Automated Expense Tracking: Submit invoices or receipts from nurseries, landscaping companies, or maintenance services via Text, Email, Slack, or the Fyle app. Fyle's OCR extracts key data automatically.
2. Real-Time Card Reconciliation: Track payments made for plants, supplies, or services on company Visa/Mastercard in real time, with instant receipt matching via text reply.
3. Automated Expense Categorization: Configure Fyle to categorize expenses based on the vendor or project. Payments to a nursery might be coded to "Inventory/COGS," a landscaping company to "Capital Improvements/Land Improvements," and a lawn service to "Repairs & Maintenance," aligning with your internal chart of accounts.
4. Seamless Accounting Integration: Sync categorized expense data (COGS, Maintenance, amounts needing capitalization) directly with accounting software like QuickBooks, Xero, etc.
5. Customizable Approval Workflows: Route invoices for landscaping projects or significant purchases for necessary management approval before payment.
6. Detailed Reporting and Analytics: Track spending on landscaping projects, maintenance costs, or inventory purchases to monitor budgets and vendor costs.
7. Compliance and Audit Trail: Maintain a clear digital audit trail for all plant-related expenses, storing receipts and invoices for easy access during audits or tax preparation.

Key Clarification: Fyle helps track and internally categorize plant-related expenses based on vendor or type. However, the user and their tax professional must apply the correct tax treatment – differentiating between COGS, currently deductible maintenance, depreciable land improvements, or potentially non-deductible decor – based on IRS guidelines.

FAQs Around Expense Categorization Of Plant Expenses

Q1: Can I deduct the cost of plants I buy for my office?

It depends. Small, inexpensive plants might be deductible as office supplies if they are considered ordinary and necessary for your business (though this isn't explicitly guaranteed in the IRS docs). Larger decorative plants or landscaping are typically treated differently. Purely aesthetic items might not meet the "necessary" criteria for a deduction. Costs under the De Minimis Safe Harbor threshold might be expensed if the election is made and requirements are met.

Q2: How are landscaping costs for my business property treated?

Significant landscaping costs (trees, shrubs, etc.) associated with business property are generally considered "Land Improvements." These costs must be capitalized and depreciated, typically over a 15-year period using MACRS GDS. They are not expensed immediately.

Q3: Can I deduct the cost of maintaining the lawn and plants around my office building?

Yes, generally. Costs for routine maintenance of existing landscaping (like mowing, weeding, watering, replacing mulch, caring for existing plants) that keep the property in its normal operating condition but don't significantly add to its value or prolong its life are typically deductible as Repairs and Maintenance expenses in the year incurred.

Q4: I run a nursery. How do I deduct the cost of plants I buy to sell?

Plants purchased or grown for resale in a business like a nursery or florist shop are considered Inventory. The cost of acquiring this inventory is recovered through the Cost of Goods Sold (COGS) calculation when the plants are sold, not as a standard expense deduction when purchased.