The IRS simplified small business accounting this month by raising the tangible property expensing threshold for deducting many capital assets from $500 to $2,500. This change affects businesses that do not have audited financial statements. For taxpayers with audited financial statements, the threshold remains $5,000.
The new $2,500 tangible property expensing threshold applies to any capital item substantiated by an invoice or equivalent. As a result, small businesses will be able to immediately deduct many expenses that would otherwise need to be spread over a period of years through depreciation deductions.
This change is a direct result of a February comment period on the new tangible property regulations, where the IRS received more than 150 letters suggesting that an increase in the safe harbor tangible property expensing threshold was imperative to reduce the administrative burden on small business owners.
“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.”
The new $2,500 tangible property expensing threshold takes effect starting with tax year 2016. Businesses can still claim deductible repair and maintenance costs, even if they exceed the $2,500 threshold.
Have questions about how this affects your business? Contact us today for a free consultation so we can help you plan for this new tax saving opportunity!
Michael Caramagno is a CPA who enjoys solving tax and accounting issues for his clients, mainly professional service providers and startups. He is the Founder & Principal at Caramagno & Associates, Ltd, a Chicago based CPA Firm. You can follow us on Twitter, like us on Facebook or find us on LinkedIn.
Source: IRS Tax Notice 15-82