$500 minimis safe harbor threshold for Expenses

The link below is from Accounting Today, I subscribe to their newsletter, it's a good one, if you like tax news.

The AICPA just sent a letter to the IRS urging them to raise the safe harbor threshold for expenses from $500 to $2,500. There is an exception for companies with formal financial statements, so that pretty much excludes all small businesses that don't pay for formal accounting.

I notice that it was a frequent topic over at TA about when to expense and when to capitalize. It's a good article.


http://link.email.accountingtoday.com/52dec304c16bcfa46f0bf8b91wbor.19vt/VDgSFMPo9dijrDt8Ae1d3

I recall a discussion about this previously. The most annoying thing IMO is the need to attach a statement to elect into the $500 exception. It would be nice if there was a checkbox on the software I use (hint hint Drake!) that would easily attach such a statement.

I expect my software (UT, ProSeries) to have such a statement checkbox, but we'll see.

Sample Election Statement
Section 1.263(a)-1(f) de minimis safe harbor election
[Taxpayer's name]
[Taxpayer's address]
[Taxpayer's EIN]
The taxpayer hereby makes the de minimis safe harbor election under Reg § 1.263(a)-1(f).

Are we going to have to do this every single year?

If so, wouldn't it be easier to just say to ourselves, "Forget the formal election. It's just a safe harbor anyway. I've always used $500 as the threshold for my clients. So if a client gets questioned on it, will the IRS really have a problem if the threshold we are using, despite a formal election, is the exact same as the prescribed safe harbor?"

Is adding one more election statement really that big a deal?

If you want to look at it this way, you can file a Form 3115 so that sub-$200 units of property are expensed as materials or supplies regardless of the de minimis safe harbor. So if you forget the election statement in any given year, you're only talking about the UoPs in the $200-$500 range that are also outside the routine maintenance safe harbor and the small taxpayer safe harbor (assuming you remembered to elect it). The preamble to the final regulations specifically provide that agents can allow a non-safe harbor book method due to prior agreements or administrative convenience. I read the latter as opening the door for the prior law clear-reflection-of-income standard if your client doesn't have a prior agreement on its expensing threshold. Again, you'd only be concerned about the UoPs in the $200-$500 range that aren't expensed via another safe harbor.