Small businesses will be able to immediately deduct the cost of more capital expense items on their annual tax returns following a new ruling from the Internal Revenue Service announced Tuesday.
Currently, small businesses can deduct capital expense items when filing annual business tax returns for costs up to $500 without spreading the cost over a period of years through annual depreciation deductions.
Beginning in tax year 2016, that threshold is raised to $2,500. The new limit applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item, the IRS says.
“This important step simplifies taxes for small businesses, easing the record-keeping and paperwork burden on small business owners and their tax preparers,” says IRS Commissioner John Koskinen.
In comments received by the IRS, small businesses and their representatives said the existing $500 threshold was too low to effectively reduce the administrative burden on small businesses. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smartphones and machinery and equipment parts typically surpass the $500 threshold.
Additional details on the change can be found on the IRS website here.