The
De Minimis
Safe Harbor
The de minimis safe harbor is a tax election that lets a business expense lower-cost purchases in the year it buys them. To use it, each of your businesses or entities has to meet four requirements.
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2024 Action Plan: Establish an accounting policy that expenses any property costing $2,500 or less per invoice item before the end of 2024. This should be documented in your corporate minute books with proof of enactment date. If you’ve already got a plan covering 2025, you’re ahead of the game.
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2025 Checklist: Set up and use an account in Quick Books (or similar) named ‘De Minimis Expenses’ for all invoices or receipts under $2,500. This makes your tax preparer’s life easier, though they might have specific tweaks to this approach.
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2025 Continued: Ensure each item is separately listed on invoices or receipts. Keep these documents safe – digital backups are a good idea. Maybe delegate the scanning task to someone who can handle the details.
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2026 Reminder: Your tax preparer must opt to expense these items on a timely filed return for each business entity. This includes various schedules on Form 1040. A gentle nudge to your CPA might be necessary, and always double-check their work.
SAMPLE DOCUMENT
[Company Name]
Effective January 1, 2025, Executed [December __, 2024]
For both book and tax purposes, the company shall expense assets costing $2,500 or less on a “per- invoice/receipt” or “per-invoice/receipt listed item” basis.
[Your name plus your position with the Company]
State of [__] County of [__]
)SS:
On this, the [__] day of [December, 2024], before me a notary public, the undersigned officer, personally appeared, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained.
In witness hereof, I hereunto set my hand and official seal.
[Notary Public]
Remember, consistency across your returns and books is key. Be cautious about altering records for different audiences like banks or investors, as this can lead to legal issues. I’d put this policy in place for each entity and each business. I would also have one policy for each Schedule C business on your personal tax return and for your rental properties if they are listed in Schedule E of your personal tax return.
It is important that EVERY item that qualifies be expensed on BOTH your returns AND your books. The latter can be a problem if you want your books to “look good” (i.e. – show more income) for banks or investors. What you show the bank needs to match the return or you risk committing loan fraud. It’s OK to negotiate item on the return with the bank (e.g. – ignore depreciation). Filing a return that looks good for the bank (i.e., skip some deductions, etc.) and then amending later to look good for the IRS IS LOAN FRAUD. Do NOT do that!
Just a reminder… Unfortunately, Congress creates lots of hoops to jump through. The one that usually gets people here is “Accounting plan in place at end of prior year.”
If you found value in this discussion and are keen to explore more about real estate, taxes, and passive income strategies for high net worth investors, I encourage you to follow me and upvote this post. For further insights, check out my podcast and YouTube channel on my profile. And for an in-depth guide, check out my latest book “The Wealth Elevator.”
Happy investing!
About the author
Lane Kawaoka, PE, is the founder of The Wealth Elevator and the author of two Amazon bestselling books, The Wealth Elevator and Simple Passive Cashflow. He spent 12 years as an engineer, bought his first rental in 2009, and left his job in 2019. He built his base in real estate and today is a general partner, operator and fund manager working with a community of accredited investors across real estate, oil and gas, and private companies. His track record: $2.1B of past real estate acquisitions, 10,000+ units acquired, 65+ projects, and $230M+ raised.
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