The IRS has recently increased the safe harbor amount that businesses may use when deciding which assets must be capitalized and depreciated and which may be deducted as ordinary business expenses. The previous amount was $500 for most small businesses. That threshold has been increased to $2,500.
Generally, the safe harbor would be applied to each item on an invoice. For example, an invoice totaling $10,000 to purchase ten computers at $1,000 each could be deducted as ordinary operating expense under the safe harbor rules. These rules don’t apply to purchases that are part of a larger project. Please ask your CPA if you have any questions.
The safe harbor rules require consistent accounting treatment. We strongly suggest that you adopt a written accounting policy which identifies the capitalization threshold that you are using, up to $2,500 per invoice/item. Then be sure to follow the policy as you enter purchase transactions in your accounting system. See the following sample:
Sample Accounting Capitalization Policy
Business Name: ____________________
For taxable years beginning ____________, 2015 and later, the general capitalization policy is that all equipment and other fixed assets costing no more than $___________ (up to $2,500) per invoice (or per item as substantiated by the invoice) will be treated as an expense for both book and tax purposes. This accounting policy is intended to comply with the IRS de minimis safe-harbor provisions at Reg. §1.263(a)(1)(f).