Tax Insights

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Pushing Tax Reform – TPR De Minimis Safe Harbor Threshold

The American Institute of Certified Public Accountants (AICPA) has recently been participating in U.S. House of Representatives, Committee on Small Business hearings on tax reform with the goal of ensuring that main street isn’t left behind. One area of focus in this regard has to do with rules relative to the de minimis safe harbor threshold for tangible property regulations.

The safe harbor allows taxpayers to set a minimum capitalization amount under which amounts are not capitalized, with the objective being relief from compliance burdens placed on small businesses. Currently, the de minimis safe harbor threshold amount for taxpayers without an “applicable financial statement” (one example being a financial statement required to be filed with the SEC) is $500. The AICPA has recommended this amount be increased to $2,500 and additionally, that it be adjusted on an annual basis for inflation.

The AICPA has pointed out that many small business owners have stated that repairs are consistently over $500 (parts are at least $250 and labor is at least $250). That a cell phone or printer can easily cost over $500 and are replaced quickly, making it administratively impractical and costly to track. The $500 threshold being too low to effectively achieve any reduction in the administrative burden of small businesses. A recent informal survey showed that many small businesses have a minimum capitalization threshold in excess of $500 anyway since few items costing $500 or less have a useful life greater than one year.

By Dale F. Jensen, CPA