The IRS recently announced that it’s raising the deductible amount for purchases of tangible property without applicable financial statements (AFSs) to $2,500 per item. It used to be that any item over $500 without an AFS had to be capitalized. (For taxpayers with AFSs, the limit is $5000.)
The AICPA played a role in persuading the IRS that the $500 threshold was too low. They argued that so many common and necessary items (such as computers and smartphones) cost more than $500, and the burden of doing the complex capitalization paperwork on each item was too high. The AICPA also pointed out that smaller businesses were being unfairly targeted, because larger businesses that have AFSs were able to deduct the same items that smaller businesses were being forced to capitalize.
The IRS agreed and the new amount applies to all costs beginning January 1, 2016.