Small Business Opportunity to Write Off Tangible Property Faster
The IRS has raised the safe-harbor threshold for deducting certain tangible expenditures from $500 to $2500; this is effective for the 2016 tax year. The change applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.
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The ruling came about due to the confusion between repairs and improvements. Generally, a repair keeps the property in good operating condition over its intended useful life – a broken window. An improvement would be building on an addition which extends the useful life of the property which increases its value or adapts it for a different use.
As a business owner you can elect to follow the safe-harbor “di-minimis” rule for tangible property if 1) the policy is in writing and effective at the beginning of the year for which the election is made and 2) each invoice or item of $500 or more is capitalized. The $500 threshold is increased to $5,000 for a taxpayer with an “applicable financial statement” (AFS) audited by a CPA or submitted to the SEC; and now it is $2,500 for taxpayers without an AFS.
The new safe-harbor threshold should simplify recordkeeping for small business owners and generate more current tax deductions. The costs for certain relatively inexpensive assets that traditionally have been capitalized—such as computers and high-end office furniture – can now be deducted immediately under the new $2,500 safe-harbor rule.
The Safe-harbor rule has exceptions; talk to us about how it applies to your business.