On November 24, The Internal Revenue Service announced an increase in the de minmis safe harbor limit from $500 to $2500.
What is the de minimis safe harbor?
The de minimis safe harbor rule allows taxpayers to deduct eligible expenditures in the year they were paid or incurred as supplies or repairs, which would otherwise have to be capitalized.
Impact of these changes
This increased threshold will simplify the paperwork and recordkeeping requirements for many small businesses. According to the IRS, they received over 150 requests from businesses and their representatives requesting an increase in the threshold because the $500 limit was too low and provided no relief to the administrative burden of managing capital assets.
This change affects businesses that do not maintain an applicable financial statement (AFS). For businesses with an AFS, the threshold remains at $5000.
The new $2500 threshold will be effective January 1, 2016, although there may be opportunities to apply it sooner.