Lets a business expense small-dollar item purchases immediately, avoiding capitalization and depreciation paperwork entirely.
How it works
If the item cost is at or below the applicable threshold — $5,000 with an applicable financial statement, $2,500 without — it can be expensed immediately rather than capitalized and depreciated.
What this does not include
The safe harbor requires a formal election attached to the tax return each year (and consistent accounting treatment) — this calculator checks the dollar threshold only, not whether the election has been properly made.
How to use this calculator
- Enter the item cost and whether the business has an applicable financial statement.
Frequently asked questions
What is an “applicable financial statement” (AFS)?
Generally an audited financial statement filed with a regulatory agency (like the SEC) or used for other substantial non-tax purposes — most small businesses don’t have one, defaulting to the lower $2,500 threshold.
Does the threshold apply per item or per invoice?
Generally per item or per invoice (whichever is supported by the underlying documentation) — multiple items on a single invoice can sometimes be aggregated depending on how they’re documented.
What happens to purchases above the threshold?
They must generally be capitalized and depreciated over the asset’s useful life, unless another provision (like Section 179 or bonus depreciation) allows accelerated expensing instead.
