Mar 252016
 
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Reminder: Tangible Property Expensing Threshold is $2,500.  In late 2015, the IRS raised the safe harbor threshold for deducting certain capital items. Previously $500, the amount was raised to $2,500 for taxpayers without an applicable financial statement, or AFS.  This was a huge “win” for the AICPA.  They had been advocating for an increased threshold for quite some time. The new de minimis amount applies to costs incurred for tax years beginning on or after January 1, 2016. However, the IRS stated that it won’t raise the issue of a higher amount during an audit of an earlier tax year if the taxpayer is otherwise compliant with the regulations. This means tax professionals should discuss with their clients whether to use the increased $2,500 limit for the 2015 tax year. Keep in mind that the de minimis expense limit doesn’t impact the amount taxpayers could otherwise expense under Code Section 179.

This new tangible property expensing threshold amount will reduce administrative burden on the part of small businesses.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

Note:  This change is a result of The Treasury Department and the IRS receiving more than 150 comment letters suggesting an increase in the amount of the de minimis safe harbor limit for taxpayers without an AFS. According to IRS Notice 2015-82, “commenters wrote that the $500 limitation was too low to effectively reduce the administrative burden of complying with the capitalization requirement for small – 4 – business taxpayers that frequently purchase tangible property in their trades and businesses. Commenters noted that the cost of many commonly expensed items (for example, tablet-style personal computers, smart phones, and machinery and equipment parts) typically surpass the current $500 per item or invoice threshold provided in § 1.263(a)-1(f)(1)(ii)(D). Commenters also stated that the $500 threshold does not correspond to the financial accounting policies of many small businesses, which frequently permit the deduction of amounts in excess of $500 as immaterial. Commenters noted that without an increase in the de minimis safe harbor limit for taxpayers without an AFS, a capitalization threshold in excess of $500 can only be substantiated by establishing that a taxpayer’s policy results in the clear reflection of income for federal income tax purposes, resulting in additional burden and uncertainty for taxpayers. Finally, many commenters expressed concern regarding the disparate treatment of taxpayers with an AFS compared to those without an AFS under the safe harbor requirements, stating that obtaining an AFS is cost prohibitive for many small businesses and does not adequately justify the substantially lower de minimis ceiling for these taxpayers.”

Tangible Property Expensing

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