Taxpayers should confirm they are maximizing tax benefits associated with the acquisition and production of tangible property and improvements to tangible and real property. One way is with the de minimis safe harbor election. In general, the de minimis safe harbor election allows businesses to deduct expenditures for the purchase or production of a unit of tangible property that would otherwise have to be capitalized. Specifically, the election applies to the acquisition of tangible property that falls under the specified threshold. Eligible taxpayers include:
- Taxpayers that have an accounting policy, for nontax purposes, at the beginning of the tax year, that is to expense amounts that are less than a certain dollar amount;
- The taxpayer treats the cash outlay that is subject to the de minimis safe harbor as an expense according to the accounting procedures; and
- The amount expensed cannot exceed the per invoice or per item (if an itemized invoice) threshold set forth by the IRS
There are two separate thresholds, one for those taxpayers that have an applicable financial statement, and one for taxpayers without an applicable financial statement. If the taxpayer has an applicable financial statement the business can expense $5,000 per invoice or per item if substantiated by the invoice instead of capitalizing and depreciating the asset. Taxpayers without applicable financial statements, are able to expense items that are $2,500 per invoice or per item if substantiated by the invoice (an increase from the prior threshold of $500). The safe harbor requires an annual irrevocable election which is made by attaching a statement to the taxpayers timely filed original federal income tax return. This election is not considered an accounting method change.
For more information on the de minimis safe harbor election and how it can benefit your business, contact a member of our Real Estate team.