IRS Adjustment Boosts Small Business Expense Threshold

Date: December 01, 2015

Limit Raised From $500 To $2,500 For Deduction Of Certain Small Business Capital Expenditures


Small businesses may soon see a little less complexity when it comes to paying taxes. In a press release the Internal Revenue Service announced that it has “simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.” The move comes after the IRS in February requested comments on the proposed change. The agency “received more than 150 letters from businesses and their representatives suggesting” urging the change. The IRS announced that the new “threshold applies to any such item substantiated by an invoice,” meaning “small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.” Business will still be able to “claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold” as they previously did.

What Happens Next

This change will become effective beginning for tax year 2016. Additionally, the IRS is planning to “provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.”

What This Means For Small Businesses

Financial Advisor Magazine reported that the IRS received comments from small businesses prior to adjusting the rule. Those comments generally stated that “the existing $500 threshold was too low to effectively reduce the administrative burden on small businesses.” Additionally, “the cost of many commonly expensed items such as tablet-style personal computers, smartphones and machinery and equipment parts typically surpass the $500 threshold.” Explaining the rule, IRS Commissioner John Koskinen said, “This important step simplifies taxes for small businesses, easing the record-keeping and paperwork burden on small business owners and their tax preparers.”

Additional Reading

NFIB previously discussed some of the more challenging tax issues small business owners face.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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