For Small Businesses: IRS Raises Tangible Property Expensing Threshold to
$2,500; Simplifies Filing and Recordkeeping
November 24, 2015
WASHINGTON —The Internal Revenue Service today 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 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.
The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, 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.
“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.“
Responding to a February comment request, the IRS received more than 150 letters from businesses and their
representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold
was too low to effectively reduce administrative burden on small business. Moreover, the cost of many
commonly expensed items such as tablet-style personal computers, smart phones, and machinery and
equipment parts typically surpass the $500 threshold.
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.
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 today on IRS.gov.