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IRS Provides New Opportunity to Write-Off Fixed Assets: What This Means for Small Business.

Posted: Sep 15, 2016
Categories: Blog Posts
Comments: 0

Breaking news! Have you heard that businesses are now able to see an instant tax deduction for all fixed assets they acquire which cost less than $2500?? It’s true!! This is a significant taxpayer-friendly change announced by the IRS last fall, and taking effect this year!

What exactly changed?

Well, the regulations pertaining to capitalization and deductions for tangible assets, commonly referred to as “TARS”, has now increased the safe harbor threshold for capitalization from $500 to $2500, for businesses that don’t have audited financial statements. The threshold for capitalization of companies that DO have audited financial statements remains at $5000.

What does this mean for your small business? Let’s take a look…

What this means, is that businesses can immediately deduct expenditures on items substantiated by an invoice of less than $2500 each, rather than capitalizing the asset and depreciating it over a period of years.

Exactly what assets are affected?

Examples of purchases that would fall within this threshold include tangible business property such as:

            Computers and office equipment


            Land improvements

            Equipment parts


*It’s important to note that taxpayers cannot deduct such costs for tax purposes unless they also do so for book purposes.*

When does this take effect?

This changed became effective for tax years beginning on or after January 1, 2016, however, the IRS indicated that generally they will not challenge the use of this threshold for tax years that began after December 31, 2011.

How did this change come about?

This limit increase was the result of taxpayer comments suggesting that the original $500 limit was too low to reduce any administrative burdens, and that it was below the threshold small businesses used as part of their capitalization policies. So, you spoke, and they listened!


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