On November 24, 2015, the IRS issued a Notice which may affect you.
For tax years beginning after December 31, 2013, regulations allowed taxpayers to adopt safe harbor expensing rules for amounts below certain limits. Under this provision a taxpayer could deduct for tax, without challenge, amounts paid for tangible property that were also expensed for financial accounting purposes. A taxpayer with an AFS (audited financial statement or financials provided to government agencies) may deduct no more than $5,000 per invoice, or per item as substantiated by the invoice. For businesses without an AFS, the maximum figure was $500 rather than $5,000. Limits could be set for amounts less than the maximum provided. Different limits can be set for different types of assets. All assets acquired with cost below the limit had to be expensed.
To use the safe harbor, the business had to have a written accounting procedure in place before the first day of the 2014 tax year. The procedure would expense amounts paid for property that costs less than a specified dollar amount or has an economic useful life of 12 months or less. This was disclosed on your 2014 tax return.
For those taxpayers that do not have AFS, the limit has been increased from $500 to $2,500 effective January 1, 2016. Again, the procedure must be in place by the beginning of the year and those amounts must be expensed in the accounting records.
For your convenience, we have provided a sample de minimis expensing policy. Your tax compliance professional will need a copy of your policy to insure it is properly disclosed with your return.
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