Dear Client:

For 2024, you can elect the de minimis safe harbor to expense assets costing $2,500 or less ($5,000 with audited financial statements or similar).

The term “safe harbor” means that the IRS will accept your expensing of the qualified assets if you properly followed the safe harbor rules.

Here are three benefits of this safe harbor:

1. Safe harbor expensing is superior to Section 179 expensing and depreciation because you don’t have the recapture period that can complicate your taxes.

2. Safe harbor expensing simplifies your tax and business records because you don’t have the assets cluttering your books.

3. The safe harbor does not reduce your overall ceiling on Section 179 expensing.

Here’s how the safe harbor works. Say you are a small business that elects the $2,500 ceiling for safe harbor expensing, and you buy two desks costing $2,100 each. On the invoice, you see the quantity “two” and the total cost of $4,200, plus sales tax of $378 and a $200 delivery and setup charge, for a total of $4,778.

Before this safe harbor, you would have capitalized each desk at $2,389 ($4,778 ÷ 2) and then either Section 179 expensed or depreciated it. You would have kept the desks in your depreciation schedules until you disposed of them.

With the safe harbor, you expense the desks as office supplies—your tax records life is easier.

There is a two-step process to benefit from the safe harbor. It works like this:

Step 1— For safe harbor protection, you must have in place an accounting policy that requires expensing an amount of your choosing, up to the $2,500 (or $5,000 limit in some cases). We help our clients follow this policy in preparing your monthly / annual financial statements.

Step 2— When our firm prepares your tax return, we make the election on your tax return for you to use safe harbor expensing. This is done with an election statement on your federal tax return and file that tax return by the due date (including extensions).

September 25, 2023

De Minimis Election

If you would like our help in ensuring that you are taking advantage of the De Minimis election or you need further assistance or have questions, please don’t hesitate to call us at 505-232-3275.

Sincerely,

Larry Filener

Larry Filener, CPA

Southwest Accounting Pros, LLC