IRS Raises Tangible Property Expensing Threshold to $2,500

The Internal Revenue Service is simplifying the paperwork and record-keeping requirements for small businesses by raising the safe harbor threshold for deducting certain capital items from $500 to $2,500.

The change affects businesses that do not maintain an applicable financial statement such as an audited financial statement. It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item that is substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen in a statement. “This important step simplifies taxes for small businesses, easing the record-keeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS said it received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. In addition, the cost of many commonly expensed items such as tablet computers, smart phones, and machinery and equipment parts typically exceed the $500 threshold.