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The tangible property regulations allow taxpayers that pay or incur amounts to acquire, produce, or improve tangible or personal property to elect to apply a de minimis safe-harbor expensing for amounts that they also expense for financial accounting purposes. The amounts allowable under the de minimis safe harbor are $2,500 or $5,000, depending on whether the taxpayer has an applicable financial statement (AFS). Taxpayers with an AFS may use this safe harbor to deduct amounts paid for purchases and/or improvements of tangible property for up to $5,000 per invoice or item, provided that this accounting procedure is in writing. Non-AFS taxpayers may use the safe harbor to deduct up to $2,500 per invoice or item. Non-AFS taxpayers are not required to have written accounting procedures, but they must expense amounts on books and records in accordance with accounting procedures existing at the beginning of the tax year.
If a taxpayer's policy is to expense items above the $2,500 threshold for non-AFS taxpayers, it should still elect the de minimis safe harbor on the federal return because this will ensure that the IRS will not question the deduction of the items costing $2,500 or less.
Taxpayers must apply their applicable threshold to their books and records to benefit from this election and eliminate any book-to-tax differences when deducting assets or improvements that fall under their applicable threshold.
To elect the de mnimis safe harbor, the taxpayer should attach a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to the timely filed federal tax return including extensions for the tax year in which the de minimis amounts are actually paid. The annual election does not require the filing of Form 3115, Application for Change in Accounting Method.
Last Updated by Admin on 2016-11-16 01:43:58 PM