IRS Raises Tangible Property Expensing Threshold for Small Businesses



By: Eli Wagler, CPA, CGMA, Senior Accountant

It certainly doesn’t seem to happen often, but the Internal Revenue Service (IRS) has listened to taxpayer’s request and made a change in favor of small business owners.

The IRS has simplified the paperwork and recordkeeping 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 (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

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

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.

The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

Taxpayers should note that in order for them to be able to employ the new DMSH $2,500 amount, they have to “change” their DMSH amount before January 1, 2016. Taxpayers are able to change their DSMH amount by just “putting in place” what their new DMSH amount is. Recall that non-AFS taxpayers just need to determine and establish their DMSH amount before the beginning of their new tax year; it does not need to be written; it does not have to be communicated.  While a non-AFS taxpayer does not have to communicate nor have a written DMSH policy, it is strongly recommend that taxpayers modify their DMSH amount to match the new safe harbor of $2,500 in writing

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

Further details on this change can be found in Notice 2015-82, posted on Please contact our team with any questions you may have. We would be happy to assist you