When you buy a fixed asset for your small business, how are you supposed to handle that in your books? Over the years, the government has created a few methods to choose from.
At CSI Accounting & Payroll, we’ve worked with monthly accounting for small businesses for over 50 years. We’ve advised thousands of prospective clients on how they can handle fixed assets, including the newest method: the De Minimis Safe Harbor election.
Those small business owners wanted to know:
- What is the De Minimis Safe Harbor election?
- Who can elect De Minimis Safe Harbor? How?
- What is the difference between the De Minimis Safe Harbor election and the Section 179 deduction? What about for rental property?
What Is De Minimis Safe Harbor Election? How Much Is It For?
The De Minimis Safe Harbor election was created by the United States government years ago. It allows businesses to write off certain affordable fixed assets and simplifies record keeping.
Original Asset Depreciation
In the beginning, when a business purchased a fixed asset, they would put it in their Balance Sheet as an asset and depreciate it over its useful life.
Section 179 Deduction
Then, we were introduced to the Section 179 deduction. It would allow the business to expense the asset in the year they bought it. However, it would still show up as an asset in the depreciation schedule. There are also limits on how much you can use Section 179, which we’ll go over when we compare it to De Minimis Safe Harbor later on.
De Minimis Safe Harbor Election
Now, with the De Minimis Safe Harbor election, you don’t need to have these assets on your books. Instead of putting it on your Balance Sheets or using Section 179, you can expense the asset right away on your Income Statement.
Who Can Make the De Minimis Safe Harbor Election & How to Do It
Every business (and only businesses) can make the De Minimis Safe Harbor election. It isn’t for personal use.
It’s simple to elect, too! Simply write an asset off on your Income Statement right away if it falls within the right requirements (which we go over in the following section).
You can label it as an office expense or whatever category feels most relevant to your business. We recommend that you write a separate category into your chart of accounts that is labeled as De Minimis Safe Harbor.
De Minimis Safe Harbor vs. Section 179 Deduction: Limits and Rental Property Usage
It’s important to compare the De Minimis Safe Harbor election to the Section 179 Deduction because they’re both valuable in their own ways, but they’re also kind of one and the same! Let’s compare differences in limits and uses.
Monetary Limits
The De Minimis Safe Harbor election lets you expense assets that were purchased for under the amount of $2,500 each – and there is no limit during any time period.
On the other hand, Section 179 can be used for any value of asset, but the current total usage can’t exceed $1,160,000 worth of assets per tax year.
Rental Property Usage
The De Minimis Safe Harbor election also allows you to use it for rental property improvements. For example, a landlord could use it to write off a new refrigerator for their rental property.
Meanwhile, the Section 179 deduction is not able to be used at all for rental properties.
Don’t Worry About Bookkeeping!
You could spend your time worrying about the differences between asset purchase bookkeeping methods – or you could leave your bookkeeping to the experts!
Now that you know more about what the De Minimis Safe Harbor election is, who can use it, how to use it, and the differences between De Minimis and Section 179, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:
