IRS Raises Tangible Property Expensing Threshold– December 08, 2015 by Lisa Loychik

Just before Thanksgiving the IRS issued Notice 2015-82, raising the tangible property threshold for deducting certain capital items from $500 to $2,500 and simplifying filing and recordkeeping for small businesses.

The notice is effective for costs incurred during taxable years beginning on or after January 1, 2016.However, the IRS has said that, upon examination, it will not raise the issue of whether a taxpayer with a non-applicable financial statement (review, compilation, tax only financial statement) can use the de minimis safe harbor of $2,500 for taxable years beginning before January 1, 2016 — IF the taxpayer otherwise satisfies the requirements of Reg. 1.263(a)-1(f)(1)(ii), which includes having the policy in effect at the beginning of the year.

So, in theory, for the 2015 tax year the new safe harbor threshold could be used by those who have had a policy of $2,500 or more in place since the beginning of the year (regardless if it is in writing). Remember, you can have a capitalization policy with amounts higher than the safe harbor threshold if it clearly reflects income.However, the IRS can challenge the amounts exceeding the safe harbor.

If your current capitalization policy is less than the new safe harbor amount of $2,500 and you want to take advantage of the increased threshold, make sure your policy is in place at the beginning of the tax year for taxable years beginning on or after January 1, 2016.While taxpayers with a non-applicable financial statement do not need to have the policy in writing, we highly recommend doing so to help formalize the policy.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Lisa Loychik at lloychik@cohencpa.comor a member of your service team for further discussion.