De Minimis Threshold: A Lesson in Latin & the IRS

Recently, the IRS updated the de minimis threshold for taxpayers without an applicable financial statement (AFS). Confused? Trust us, this is a good thing.

First, a Latin lesson. De minimis is a Latin expression meaning “about minimal things.” So what does this have to do with the IRS? Well a de minimis threshold is the lowest payment value required to count toward payments on a given project. In other words, if the value of a payment is under the de minimis threshold, it does not have to be reported.

So what’s with the IRS’ change of heart? Well several taxpayers made sure to let the IRS know that the previous threshold ($500 on a per-invoice or per-item basis) wasn’t really working for them. They even gave a few reasons: (1) the threshold was too low to truly reduce the administrative burdens of complying with the repair regulation requirements for small taxpayers (read, it caused a lot of time and paperwork without adding any real value), and (2) the amount paled in comparison to the $5,000 safe harbor provided for taxpayers who have an AFS.

And now a financial lesson. An applicable financial statement (AFS) is one prepared in accordance with U.S. Generally Accepted Accounting Principles. In other words, it’s something your accountant helps you do. And no, not all businesses need one. Here’s a refresher on why you might. 

The change, effective January 1, 2016, raises the de minimis threshold to $2,500 on a per-invoice or per-item basis for taxpayers without an AFS. It’s effective for expenditures incurred in taxable years beginning January 1, 2016. This change will simplify record-keeping requirements for small businesses. In other words, the IRS just made your life a little bit easier. Happy New Year.

De minimis

Want to know more? This change is great and all, but with it comes new elections and policies and procedures that need to be put in place effective January 1, 2016. So make sure to chat with a tax specialist about how to implement this in your organization. What, you thought it would be easy? Have we taught you nothing about taxes so far?

 

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