You Make the Call - Oct. 16, 2025

Question: Harbor Design Inc. is an S corporation that does not have an applicable financial statement (AFS). On Jan. 1, 2025, Harbor adopted a written accounting policy to expense amounts paid for property that cost $2,500 or less per invoice (or per item as substantiated by the invoice). In 2025, Harbor bought the following for ordinary business use:

• Eight laptops listed separately on one invoice at $2,400 each (total $19,200)
• One network server for $6,800 on a separate invoice
• Ten toolkits on one invoice, showing each toolkit at $350

Harbor will file a timely, original 2025 return on Form 1120-S, U.S. Income Tax Return for an S Corporation. For 2025, how much may Harbor deduct under the de minimis safe harbor of §1.263(a)-1(f), and how does Harbor make the election?

Answer: Harbor may deduct $22,700 under the de minimis safe harbor by attaching the required annual election statement to its timely filed original 2025 return. Deductible amounts are the eight laptops at $2,400 each ($19,200) and the ten toolkits at $350 each ($3,500). The $6,800 server exceeds the $2,500 per-item threshold and isn’t eligible for the de minimis safe harbor.

The tangible property regulations allow a taxpayer without an AFS to deduct amounts paid for property up to $2,500 per invoice, or per item, as substantiated by the invoice, if there’s a contemporaneous written accounting policy in place at the beginning of the year and the amounts are expensed on the books.

The $2,500 threshold applies per item when the invoice lists separate item prices. Harbor’s laptops and toolkits each fall at or below $2,500 per item, so they qualify. The $6,800 server exceeds the threshold and must be capitalized unless another provision (for example, §179 expense or bonus depreciation) applies. The de minimis safe harbor is elected annually by attaching a statement to the timely filed original return.