Capital Expenditures – De Minimis Safe Harbor Election
The IRS has issued Final Regulation 1.263(a)-1(f) providing a de minimis safe harbor election for amounts paid to acquire or produce tangible property.
In the case of a taxpayer without an Applicable Financial Statement (no SEC reporting or audited Financial Statement) a taxpayer may elect to expense rather than capitalize amounts paid for property that do not exceed $500 per invoice or per item.
However in order for the taxpayer to elect this rule, the taxpayer should have accounting procedures at the beginning of the taxable year treating as an expense in their accounting books:
1. Amounts paid for property costing less than a specified dollar amount; or
2. Amounts paid for property with an economic useful life of 12 months or less.
In addition the taxpayer must be able to demonstrate that these amounts have been treated as an expense on its books and records in accordance with the above procedures and:
The amount paid for the property does not exceed $500 per invoice or per item substantiated by the invoice.
It is important to note that the above will typically apply to small to midsize businesses that are not public and don’t file SEC reports, or are private and do not have a certified annual audit by a CPA.
For further guidance on these IRS regulations or putting the applicable internal accounting procedures in place, please call the author at 704 491 5201 or email to firstname.lastname@example.org.
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