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IRS Raises Tangible Property Expensing Threshold to $2,500 for Small Businesses

The I.R.S. has raised the safe-harbor threshold for small businesses for deducting certain tangible expenditures. The threshold has increased from $500 to $2,500, effective for the 2016 tax year and forward. It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item as long as the cost is substantiated by an invoice. As a result, many assets that were traditionally capitalized, such as computers, tablets, smart-phones and high-end office furniture, can now simply be categorized as "supplies" on the income statement.

The threshold for taxpayers with an “applicable financial statement” (AFS) audited by a CPA or submitted to the SEC, is $5,000.

Note that Section 179 still allows taxpayers to deduct tangible business property in the year placed in service up to the lesser of $500,000 or net taxable business income.

 


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