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Due to a recent change by the IRS, we want to update one of our previous blog posts published back in December of 2013. Among other subjects, this blog post outlined the original $500 de minimis safe harbor limit in the Tangible Property Regulations, which was relevant to taxpayers that did not have an applicable financial statement (AFS). Essentially, the de minimis safe harbor election is intended to be a convenient threshold under which a taxpayer can deduct a small dollar amount that was spent to acquire property, produce new property, or to improve existing property.
The IRS announced on Tuesday, November 24th that they will increase the de minimis safe harbor limit to $2,500 per invoice (or per item, validated by the invoice), for taxpayers without AFSs. This change is effective for costs incurred during taxable years beginning on or after January 1, 2016. For taxpayers with an AFS, in accordance with their capitalization policy, the de minimis safe harbor remains unchanged at up to $5,000.
It is nice to see the IRS continue to favorably adapt the Tangible Property Regulations. For small businesses, this change will help reduce some of the administrative burden related to these smaller expenditures.
Need further clarification on how this affects you or your business? Reach out to your Delap tax advisor today, and we'll be happy to walk you through the change.
References: IRS Notice 2015-82 and §1.263(a)-1(f)(1)(ii)(D).
Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.