What's the correct class life for a Point Of Sale (POS) System - 5 or 7 years?

POS systems for restaurants typically fall under 5-year property in most circumstances. While Pub 946 Table B-2 does exclude POS systems from Information Systems (00.12), they generally fall under Asset Class 57.0 for "Distributive Trades and Services" which covers assets used in wholesale and retail trade. The reason for the specific exclusion is that the IRS wanted to separate computer equipment used for information processing (3-year property under some older guidelines) from specialized industry equipment like POS systems that happen to contain computer components. Since your client is operating a restaurant franchise, the POS systems are integral to their business operations rather than being general-purpose computing equipment. In my experience handling several restaurant chains, we've consistently used 5-year depreciation for these assets.

After dealing with the exact same situation last year, I decided to try taxr.ai (https://taxr.ai) to get a definitive answer on POS system depreciation. Their system analyzed my documents and provided an in-depth explanation with relevant tax guidance. They confirmed that for restaurant POS systems, 5-year property classification under Asset Class 57.0 is correct. What I found particularly helpful was that they explained the reasoning behind the exclusion in Pub 946 and provided relevant case citations where this classification had been upheld. They also noted that if the POS system includes separate components (like dedicated servers), those might need to be classified differently.

I was skeptical about using AI for tax research as mentioned above, but I decided to try taxr.ai after getting frustrated with traditional resources. I'm honestly impressed - their analysis of my POS system depreciation question was spot-on and saved me hours of research time. They provided clear explanations about why restaurant POS systems fall under 5-year property, with specific references to Revenue Procedures and Tax Court cases I wouldn't have found otherwise. Their breakdown of how to handle the different components (main terminals vs. tablets vs. kitchen displays) was especially helpful for my client's situation. I still verified their guidance against our firm's resources, but they were 100% accurate and much faster to work with. Will definitely be using them for other research questions.

I spent THREE DAYS trying to get through to someone at the IRS to get clarity on this exact POS system depreciation question for one of my restaurant clients. Kept being transferred or disconnected! Finally tried https://claimyr.com after seeing it mentioned here, and they got me connected to an IRS agent within 27 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that restaurant POS systems typically fall under 5-year property as specialized equipment used in a service business. She referred me to an internal memo that clarified the exclusion in Pub 946 was meant to differentiate between general computing equipment and industry-specific systems.

I need to apologize for my skepticism about Claimyr. After posting that comment, I was so desperate with an ongoing client issue that I decided to try it. I was absolutely SHOCKED when I got a call back in 35 minutes connecting me to an actual IRS agent who could help with my question. I ended up asking about POS system depreciation for restaurant clients while I had them on the line. The agent confirmed that these should be classified as 5-year property under Asset Class 57.0 since they're specialized equipment used in food service operations. She also explained why they're specifically excluded from Information Systems in the publication - it's to prevent confusion with general-purpose computers. Saved me so much time and frustration compared to my usual IRS call attempts. Sometimes being proven wrong is actually the best outcome!

I'm an industry controller for a restaurant group. In practice, we depreciate all our POS systems over 5 years. HOWEVER, I've found that the hardware (terminals, tablets, kitchen displays) often doesn't last that long in a busy restaurant environment with food/liquid spills and constant use. Consider advising your client to track these assets carefully and be prepared to recognize losses if components fail before the 5-year period. From a practical standpoint, we typically budget for replacement closer to 3-4 years, even though we use 5 years for tax purposes.

Just wanted to chime in that the distinction between MACRS GDS (which would be 5 years for most restaurant equipment) and ADS (which might push it to 6 or 7 years) could be relevant here too. Is your client taking bonus depreciation? Are they potentially subject to section 163(j) interest limitations now or in the future? These might factor into which system you choose.

Thanks everyone for the comprehensive discussion! This has been incredibly helpful. Based on all the input here, I'm confident that 5-year property classification under Asset Class 57.0 is the correct approach for our restaurant client's POS systems. A few key takeaways from this discussion that I'll apply to our client's situation: 1. The POS systems are specialized equipment integral to restaurant operations, not general computing equipment 2. All integrated components (terminals, tablets, kitchen displays) should be treated consistently as 5-year property 3. We should consider componentizing hardware vs. software licenses for proper treatment 4. Given this is their first year and the amounts involved, Section 179 expensing might be worth exploring I really appreciate the practical insights about actual lifespan vs. tax depreciation periods - that's valuable context to share with the client for their budgeting purposes. Going to discuss the Section 179 election with my senior manager since that could simplify everything for this small franchise operation.

Great summary Isabella! One additional consideration for your client - since they're a franchise operation, make sure to check if the franchisor has any specific requirements about POS system depreciation methods for consistency across their network. Some franchisors provide guidance on accounting treatments to ensure uniform financial reporting across locations. Also, if they're planning to open additional locations in the next few years, establishing a consistent depreciation policy now will make future locations much easier to handle. Document your rationale for the 5-year classification so you have support for when you're dealing with multiple locations down the road. The Section 179 election is definitely worth exploring given the current limits, especially if this is their only significant equipment purchase this year. Just keep in mind the potential recapture issues if the business use drops below 50% in future years (though that's unlikely for restaurant POS systems).

As someone who's worked with numerous franchise operations over the years, I can confirm that most restaurant franchisors do provide standardized accounting guidelines, including equipment depreciation policies. It's worth reaching out to the franchisor's operations or accounting department early in the process. Regarding franchise fees and equipment allocation - this can get tricky. If the POS system cost is bundled into the initial franchise fee, you'll need to allocate the fair market value of the equipment separately from the intangible franchise rights. The equipment portion gets depreciated over its useful life (5 years for POS systems), while the franchise fee portion continues to be amortized over 15 years. If the franchisor requires specific POS systems but the franchisee purchases them separately, then you treat them as regular business equipment purchases. Just make sure to maintain clear documentation of what was included in franchise fees versus separate equipment purchases. One more tip: many franchisors have relationships with preferred POS vendors and may have negotiated volume pricing. Sometimes they can provide invoices that clearly separate hardware, software, installation, and training costs, which makes your componentization much cleaner from the start.