New repair regulations from the IRS require businesses to keep a written capitalization policy if they would like to utilize the safe harbor provisions of the regulations. Companies with audited financial statements can qualify for a safe harbor capitalization policy that allows them to deduct all assets under $5,000. However, companies without audited financial statements have a safe harbor provision of only $500 per invoice item.
For example, if you purchase 5 computers for $400 each and they all appear on the same invoice, those computers can be expensed even though the invoice totals $2,000.
The written capitalization policy needs to address that for non-tax purposes on the company’s books and records de minimus items will be expensed if:
- The items cost less than a certain dollar threshold (for example $500) or
- The items have an expected economic life of 12 months or less
The written capitalization policy cannot be for tax purposes only, but must be consistently applied for both book and tax purposes. Additionally, the de minimus amount cannot exceed $500 if the company does not have audited financial statements.
Please contact us if you need assistance drafting a written capitalization policy for your company.
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