The deductible amount for purchases of tangible property by taxpayers without applicable financial statements has been raised to $2,500 from the previous $500 threshold.

What Your Accounting Policy Needs

In order to meet this IRS regulation, your accounting policy must be written and be in place by the beginning of the year. The policy must also have procedures for treating as an expense for non-tax purposes amounts costing less than $2,500, or that has a useful life of less than 12 months. An election must be made on your corporate income tax return as well.

Below is a link to an informative article on the subject and a sample policy that you can use for your business. Please fill in the blanks with your business name.

Article: New Safe Harbor Policy

Sample Capitalization Policy

This accounting policy establishes the minimum cost (capitalization amount) that shall be used to determine the capital assets that are to be recorded in [name of your business]’s annual financial statements (or books).

Materials and Supplies definition
A “material or supply” is generally considered to be tangible property that is used or consumed in the business within twelve months of acquisition, is not inventory, or has a unit cost of less than $200. Materials and supplies meeting this definition may be expensed.

Capital Asset definition
A “Capital Asset” is defined as a unit of tangible property that: (1) has an economic useful life of more than 12 months; and (2) was acquired or produced for a cost of more than $2,500, including acquisition and installation costs on the same invoice. Capital Assets must be capitalized and depreciated for financial statement (or bookkeeping) purposes.

Capitalization thresholds
[Name of your business] establishes $501 as the threshold amount for minimum capitalization of tangible property. Any items costing below this amount will be expensed in [name of your business]’s annual financial statements (or books).

Capitalization method and procedure
All Capital Assets are recorded at historical cost as of the date acquired.
Tangible assets costing below the aforementioned threshold amount are recorded as an expense in [name of your business]’s annual financial statements.

Routine Maintenance definition
Routine maintenance that [name of your business] reasonably expects to make more than once to a unit of property, including buildings, over a 10-year period is not a capital asset and will be expensed.

Invoices substantiating the acquisition cost of each unit of property shall be retained for a minimum of five years.

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