In the interest of simplifying paperwork and record-keeping requirements for small businesses, the IRS raised the safe harbor threshold for deducting specific capital items from $500 to $2500. Specifically, businesses that do not keep an applicable financial statement will be affected by the change. For taxpayers that have an applicable financial statement, or audited financial statement, the de minimis threshold will remain at $5,000. The new $2,500 threshold will include money that is spent to improve, acquire, or produce tangible property that would typically qualify as a capital item. Because the recently increased IRS Tangible Property Expensing threshold applies to any item that is substantiated on an invoice, small businesses will now be able to immediately claim a deduction for expenses that would previously have been required to be claimed through depreciation deductions and spread over a number of years.
The change was made in response to more than 150 letters the IRS received from businesses calling for the increase. In particular, the letters noted that previous IRS Tangible Property Expensing threshold $500 was not high enough to reduce the administrative burden on small businesses. Most businesses require the use of a tablet, smartphone, laptop, or similar equipment, which easily exceeds $500.
Despite the increased threshold, businesses will still be able to claim deductible repair and maintenance costs, even if they surpass $2,500. The new threshold will become effective at the beginning of the 2016 tax year. The IRS will also offer audit protection to businesses that use the threshold prior to 2016.
While the new IRS Tangible Property Expensing threshold will help to ease the administrative burden on small businesses, working with a trustworthy and knowledgeable accountant can also make tax planning and filing much more manageable. Furthermore, tax laws are constantly changing; therefore, having the guidance of a qualified tax professional can help businesses remain in compliance with current laws and realize tax savings that may otherwise be overlooked. Gary Kaplan is a CPA with more than 18 years of experience assisting individuals and businesses with virtually all aspects of their tax and accounting needs. Taxpayers in Florida, Maryland, Washington, D.C., Utah, and New York are encouraged to call Mr. Kaplan to learn more about what the new threshold may mean for their business.
