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IRS Expands Major Tax Break for Businesses

On November 24, 2015, the IRS 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, such as equipment.

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.

Earlier this year, the IRS received more than 150 letters from businesses and CPAs 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.
Businesses can still deduct otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.

While the new $2,500 threshold takes effect in 2016, the IRS said they will not challenge use of the new $2,500 threshold in earlier tax years.

As we prepare your 2015 tax return and review your business records, we will look for opportunities to take advantage of this higher threshold to increase your deductions.

Be sure to let us know if you have any questions in the meantime.

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