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What is a Capitalization Policy?

A capitalization policy is used by a company to set a threshold, above which qualifying expenditures are recorded as fixed assets, and below which they are deducted as a current expense. The policy is typically set by management.

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The threshold level set by a capitalization policy can vary considerably. Smaller businesses typically use the De Minimis Safe Harbor threshold of $2,500 whereas larger businesses can set very high thresholds (ex. $50,000).

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