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IRS Increases De Minimis Safe Harbor Expensing Threshold

By MarksNelson on November 30, 2015 in Articles, Tax

The IRS has increased from $500 to $2,500 the maximum threshold for expensing certain capital items under the de minimis safe harbor provided in Reg. §1.263(a)-1(f). The threshold for taxpayers with an applicable financial statement (AFS) remains set at a maximum of $5,000 per invoice (or per item as substantiated by the invoice).

The increased threshold is effective for tax years beginning on or after January 1, 2016.  For a tax year beginning before January 1, 2016, the IRS will not raise the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor for an amount that does not exceed the new $2,500 limit as long as the taxpayer otherwise satisfies the requirements for using the safe harbor. Furthermore, if the taxpayer’s use of a threshold that is greater than the $500 threshold but not higher than the new $2,500 threshold is an issue under consideration in examination, appeals, or before the Tax Court in a tax year that begins after December 31, 2011, and ends before January 1, 2016, the IRS will not pursue the issue as long as the taxpayer satisfied all other applicable requirements for using the safe harbor.

Since the safe harbor is not an accounting method, it is not necessary to file an accounting method change to use the increased threshold amount. However, in accordance with the existing rules, the taxpayer must have accounting procedures in place at the beginning of the tax year that expense for nontax purposes amounts paid for property that costs less than a specified dollar amount (not to exceed the applicable threshold), and the taxpayer must actually expense those amounts on its books and records. In the case of a taxpayer without an AFS, the written accounting procedures do not need to be in writing.

Please contact your MarksNelson representative at (816) 743-7700 should you have any questions regarding this change to the safe harbor limit.

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MarksNelson LLC works with clients to help safeguard and grow their businesses. Our ultimate goal is to help our clients to Move Forward. The firm provides Assurance, Accounting Services and Business Advisory, Business Valuation, Consulting, Cost Segregation, Employee Benefit Plan Audits, Litigation Support, Forensic Accounting, International Tax, State and Local Tax and Tax planning, advisory and compliance services. MarksNelson is a member of The Leading Edge Alliance, the second-largest international professional association of independently owned accounting and consulting firms, serving clients who need additional resources on a national or international level. MarksNelson has significant accounting and business advisory experience in the auto dealership, construction, insurance, manufacturing, distribution and real estate sectors. The firm was named among the 2014 Best Accounting Firms for Leadership Equity by the 2014 Accounting MOVE Project for its dedication to gender equity.