In the following “Expertise Beyond the Numbers” blog post, SC&H Group’s Tax Services team provides an update on the newly released de minimis safe harbor expensing election increase – and the steps to take now as a result of this new guidance.
On November 24, 2015, the IRS released new guidance on the de minimis safe harbor expensing election for taxpayers that do not receive audited financial statements.
In Notice 2015-82, the IRS increased the safe harbor election maximum to $2,500 from the previous amount of $500 for deducting certain capital items. The original $500 amount was a part of the significant IRS repairs and maintenance regulations that were finalized in 2014.
This change is formally in effect for tax years beginning on or after January 1, 2016. Based on this new guidance, SC&H Group recommends taxpayers take action and follow the recommended next steps below:
- For those taxpayers that do not receive audited financial statements, consider adjusting your capitalization policy up to the $2,500 safe harbor limit, or some amount between $500 and the new maximum of $2,500.
- For those taxpayers that have their annual financial statements audited, the safe harbor remains at a $5,000 maximum. Remember, this policy must be followed for both book and tax purposes in order to be respected by the IRS.
- It is also possible to use the increased $2,500 safe harbor maximum limit for the 2015 tax year if you had a policy in place that used a higher threshold (again up to $2,500 per item, per invoice). For a policy to be in place, it does not need to be written, merely in place and used as your capitalization threshold. If the policy is in place during the 2015 tax year, the IRS has stated that, upon examination, it would not raise the issue of the safe harbor threshold as long as it does not exceed the $2,500 limit.
- Once you have reviewed and updated your capitalization policy, we recommend that you thoroughly examine your fixed asset listings and write off any assets that fall below the applicable safe harbor threshold before you finalize your financial statements for the 2015 tax year. This should help to save considerable time during your attest work and tax return preparation, as well as potentially decrease your 2015 and 2016 federal and state income tax liabilities.
If you have any questions or concerns about this new guidance on the de minimis safe harbor expensing election, please contact SC&H Group’s Tax Services team here.