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De Minimis Safe Harbor Threshold Increased to $2,500

Updated: Dec 9, 2019

On November 24th the IRS issued Notice 2015-82 announcing an increase in the deductible amount for purchases of tangible property for taxpayers without applicable financial statements from $500.00 per item to $2,500.00 per item. Under the final tangible property regulations (Internal Revenue Code Section 162(a) and 263(a)) small business taxpayers are able to elect to deduct current expenditures for the purchase of tangible property that would otherwise have to be capitalized. Previously, the election was limited to $500.00 per invoice per item. The increase was due to the IRS having received more than 150 comment letters suggesting an increase in the de minifies safe harbor amount for taxpayers without applicable financial statements. The commentators stated that the $500.00 threshold is commonly exceeded by the cost of commonly expensed items such as computers and cell phones. The IRS states the goal of the final tangible property regulations is to reduce administrative burden for small business taxpayers.

The $2,500.00 safe harbor threshold will go into effect for costs that are incurred in the tax years beginning on or after January 1st 2016. It is important to note that the IRS will not raise upon examination the issue of whether a taxpayer without an applicable financial statement can utilize the revised $2,500.00 safe harbor limit in tax years prior to January 1, 2016.

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