It is a common decision for a small business to not keep audited financial statements, which means they do not get some of the tax benefits given to companies that have “applicable financial statements.” One such tax provision is the amount a company can claim under the de minimis safe harbor for capital items.
The de minimis safe harbor is designed to reduce paperwork and recordkeeping requirements, but still allow business to deduct expenses for improvement in tangible property that would normally qualify as a capital item. Under the previous Internal Revenue Service (IRS) regulation, the small business not keeping applicable financial statements were limited to $500, while those with audited financial statements were allowed up to $5,000. Starting with the 2016 tax year, the small business not keeping audited financial statements will be able to deduct up to $2,500 per invoice under the de minimis safe harbor for expenses to improve tangible property.
What this means for many small business owners is that expenses for the “acquisition or production of new property or for the improvement of existing property” may be deducted if the expenditure is less than $2,500 per invoice. This should ease accounting burdens and paperwork requirements for small business that sought to deduct these types of expenses under the previous rule.
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