Published

October 12, 2023

Author

Jeremy A. Johnson, CPA

Tags

Bookkeeping, Tax Advice

About the Author

Novyx Group - Founder & CEO Jeremy A Johnson, CPA

Jeremy A. Johnson, CPA, CEPA

Jeremy A. Johnson, CPA, CEPA is the founder and CEO of The Novyx Group. With twenty years of experience in CFO services, business advisory, tax planning, accounting, and financial leadership, he leads an M&A firm that is unique among its peers. The first priority is to fix what’s broken, lower the cost of doing business, and create a stable foundation for long-term profitability. What emerges from that process is a business with airtight tax, accounting, and financials that is ready to sell or acquire when the opportunity presents itself.

Mr. Johnson has been recognized by the Fort Worth Star Telegram as the top-performing CPA in DFW for two consecutive years. He has dedicated his professional life to small business owners and their families. Most importantly, he believes that “in our community, a life of hard work should be rewarded with wealth, prosperity, and happiness.”

Accounting Services

What Is the “Safe Harbor” Rule?

Author

Jeremy A. Johnson, CPA

Here are two questions that more small business owners should be able to answer: What is the safe harbor rule? And how can it help my small business?

Back in 2013, the IRS established the de minimis safe harbor to provide small businesses with relief from certain tax and regulatory requirements.

Now it’s been ten years. If you haven’t been using it, it’s time to apply the de minimis safe harbor rule to your business.

Individuals can deduct their tangible property immediately

Here’s how it works: Typically, you capitalize depreciable property, spreading the cost over several years. The de minimis safe harbor election lets you collect the complete write-off the year you made the expense, as long as it’s under a certain dollar threshold.

The rule eases the burden on small businesses

Let’s get into the why.

The IRS acknowledges that small businesses often need more resources to comply with every rule and regulation imposed on large corporations.

With the de minimis safe harbor rule, you no longer need to determine whether every small-dollar expenditure spent to acquire or produce property is deductible or capitalizable.

There are two benefits of the rule:

Tax savings
Simplified record-keeping

1. Save money

Purchases falling under the de minimis threshold are exempt from taxation; this reduces your taxable income, leading to lower overall tax liability.

Remember that the limit only applies if you have an applicable financial statement (usually an audited financial statement). If you don't have an applicable financial statement, you can use the safe harbor rule to deduct up to $2,500 ($500 prior to Jan. 1, 2016) per invoice or item.¹

So, hold onto your receipts and keep your statements in order.

2. Ease IRS compliance

You already know how difficult compliance with complex tax laws and regulations can be (although it’s easier with the help of a CPA).

The de minimis safe harbor simplifies this by providing a threshold under which certain transactions are considered too insignificant to need detailed reporting. Less administrative burden for you and other small businesses is a good thing.