Create and protect your safe harbor expensing for you, your partnership or corporation with a formal election on your tax return to use the de minimis safe harbor to expense assets costing a maximum of $2,500 (or $5,000 with applicable financial statements).
Some of the burdens eliminated by safe-harbor election are tracking small dollar assets, depreciating and/or Section 179 expensing them in your tax returns and account books, and removing them from your books when the assets are removed from your business.
So, what is safe-harbor in IRS language? It means that the IRS will accept the expensing of the qualified assets if you properly abided by the safe-harbor rules. If your asset purchases do not qualify for safe-harbor expensing, not to worry, choose Section 179 expensing and Section 168(k) for bonus depreciation.
For those of you who wants to go for safe-harbor expensing for 2024, here is what you need now. If you have used safe-harbor expensing in previous years, then you should see safe-harbor election on those previous year tax returns.
What is Safe Harbor?
The de minimis safe harbor, during implantation
Understanding your limit
There are two safe-harbor rules; one is for you. You may or not have an applicable financial statement (AFS) for your business. But if a certified public accountant (CPA) audit is done to your financial statement, you have an AFS.
Here is the difference between having an AFS and not having an AFS:
Simple steps to create the Safe Harbor
When you sell or dispose of a safe harbor property, don’t treat it as a capital asset under Section 1221 or as property used in trade or business under Section 1231.
The expense policy must be in place at the beginning of the year. The expense policy should be put in writing and followed. The invoices should be maintained and the annual election to expense on your federal income tax return must be made.