On November 24, 2015, the IRS released Notice 2015-82 (https://www.irs.gov/pub/irs-drop/n-15-82.pdf) which increases the de minimis safe harbor threshold for expensing low-cost items that might otherwise have to be capitalized (“depreciated”) on a business’s tax return. Under current law, for businesses that don’t have “Applicable Financial Statements” (basically financial statements audited by a CPA), the safe harbor cap is $500. Under the new law, beginning January 1, 2016, the safe harbor cap increases to $2,500.
As under the current law, the new law requires that taxpayers have an internal accounting policy in place that incorporates the safe harbor amounts before year end. While the regulations do not require that the accounting policy be documented in writing, we recommend that our clients do so. If you would like a copy of a sample accounting policy for capitalization, please contact us. We will be happy to provide you with one free of charge.
While the new regulations change the thresholds for businesses that do not have an “Applicable Financial Statement,” the current $5,000 threshold remains in place for businesses that do have an Applicable Financial Statement.
To take advantage of the tax savings that will come from this new rule, be sure to adopt your new accounting policy before January 1, 2016.
Don’t hesitate to contact us if you have any questions or if you need assistance in adopting or updating your tax accounting policies for this change.