Here’s some welcome good news for your small to medium Fresno business!
You’re likely already aware that, in the past, the threshold for deducting tangible property purchases was a mere $500 per item. Previously, items over the $500 threshold had to be capitalized. Not only did this eliminate simply deducting most purchases or repairs as expenses, but it also placed a substantial burden on businesses because of the complexity of capitalization rules.
The Way It Was Then
The IRS recently opened up for comment the possibility of raising the de minimis (minor or inconsequential) limit, and many responded. They pointed out, and justifiably so that the $500 threshold was too low to reflect the true cost of doing business today. Even smaller ticket purchases like smartphones typically cost more than $500.
Additionally, advocates for raising the de minimis amount pointed out the disparity between the threshold for small businesses and that for larger ones. As the system existed, taxpayers with an AFS (Applicable Financial Statement) were permitted to deduct up to $5,000 per item. Because an AFS is typically too expensive for most small businesses, the rule effectively posed an income test to qualify for the larger threshold. The result was that smaller businesses were being unfairly burdened. Larger businesses purchasing the same items at the same prices could deduct up to $5,000 per item while smaller businesses were permitted a threshold of just $500.
The Way It Is Now
Thankfully for your small to medium Fresno business, the IRS listened to the reasonable comments of respondents, and raised the de minimis threshold to $2,500 per item for businesses without an APS.
The rule applies to tangible property purchases, including components purchased to repair or maintain tangible property.
Beginning January 1, 2016, the new “safe harbor” will allow your Fresno business to simply deduct (instead of depreciating) the cost of typical purchases like copiers, printers, and other office equipment. Of course, you’ll want to consult with your tax accountant to fully understand and benefit from this new ruling.
It’s a great time for your Fresno organization to replace aging copiers and other equipment. Contact us at C.A. Reding to update your office systems today!