On November 24, 2015, the IRS raised the de minimis safe harbor expensing threshold from $500 to $2,500 for businesses that do not maintain an applicable financial statement (“AFS”). The threshold applies to amounts paid to acquire, produce or improve tangible property.
Taxpayers may make the yearly safe harbor election on property that does not exceed $2,500 per invoice or per item as substantiated by the invoice.
The effective date for the increase is taxable years beginning on or after January 1, 2016. For taxable years beginning before January 1, 2016, the IRS will not raise upon examination of whether a taxpayer without an AFS can utilize the increased safe harbor amount of $2,500.
For more information, please see IRS Notice 2015-82 and IR-2015-134 on the IRS.gov website.
While the IRS does not require a written capitalization policy in order to elect and use the safe harbor, Pugh CPAs highly recommends that clients have a capitalization policy in place each year. If your business currently has a $500 capitalization policy and would like to update to the $2,500 safe harbor or if your business needs a written policy put in place, please contact Pugh CPAs.
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