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Final Repair Regulations

How you can benefit from the “de minimis safe harbor” rule

The Internal Revenue Service has issued final regulations that have significant impact on the tax treatment of expenditures made in connection with the acquisition and use of tangible property, starting with taxable years beginning in 2014. The regulations are extremely complex and cover a wide array of issues pertaining to tangible property.

Of particular importance is a provision that permits a business to deduct for tax purposes entire classes of items that are not inventoriable, so as long as individually the cost of an item does not exceed a specific dollar amount. This provision is referred to as a “de minimis” and/or “safe harbor” provision and it requires that a business have an accounting policy in place as of the start of the tax year (in writing if the company has an “applicable financial statement”). Another important requirement is that the taxpayer must follow the same expensing procedure for financial statement purposes.

The amount that a business can expense depends on whether it has an “applicable financial statement,” which generally means an audited financial statement accompanied by the report of an independent CPA. For taxpayers with an applicable financial statement, the maximum per unit cost of property that can be expensed is $5,000. For taxpayers without an applicable financial statement, the maximum per unit cost of property that can be expensed is $500.

For further information, including a template that you may use to implement the written accounting procedures requirement, please contact Elizabeth Resendes, or your Sansiveri tax professional at 401-331-0500. We will be available to assist you in the implementation of these new expensing provisions if you choose to adopt the de minimis safe harbor procedure.