The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules.
De Minimus Safe Harbor allows you to immediately expense assets and certain repairs up to $2,500 (per asset/repair). If you have applicable financial statements, that limit goes up to $5,000. An applicable financial statement is any financial statement required to be filed by the SEC or, if you are not required to file with the SEC, then it’s any financial statement that a CPA firm audits.
Similarly, Section 179 also allows you to fully deduct the asset in the current year; however, it comes with limitations that De Minimus Safe Harbor does not have:
- Section 179 has a limit on how much you can take per year.
- You must list that item in your assets under Section 179. Safe harbor allows you to record these items directly to expense.
- Lastly, Section 179 is subject to recapture, which could increase your tax liability without proper planning.
To use the safe harbor election, the asset or repairs must be for ordinary and necessary business use, and your business must be consistent in accounting for those expenses for the applicable tax year. You cannot expense some items and capitalize others.
De Minimus Safe Harbor is a great election to take advantage of so that you can immediately capture expenses that you would otherwise have to capitalize and spread out the deduction over several years.
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