Determining whether a purchase is a fixed asset can be complex at times. Here is a list of things you should consider:
- Does it cost more than a $100.00? Every company has a different material amount for purchases, but it should cost more than that.
- Will it last longer than one year? Fixed assets contribute to the bottom line for more than one year, usually.
A stapler, for instance would last longer than one year, but costs less than a $100.00. It is usually is not capitalized. But I have seen them capitalized on old accounting books, so you might see them from time to time.
- It is a computer? You should capitalize it. I know they can wear out quickly, but it’s really a business asset.
- Is it a phone? When cell phones were new; they were highly regulated. Now that the price has dropped and they are everywhere, the tax regulations have dropped. Usually, unless it’s an extremely expensive one, I expense these now.
- Is it a tablet? Capitalize it.
Remember that if you use those items for personal and business that you need to calculate the percentage of personal/business use. Apply the percentage to your business taxes.
- Personal Vehicle. It takes more than slapping a company sign on your personal vehicle to make it a business expense. Keep a mileage log, all the fuel receipts and keep your nose clean. If it doesn’t meet the IRS requirements for writing off the vehicle; you will be able to write off the business mileage.
- Company Vehicle. Track the mileage and expenses. The company will be able to write it off. Notice that there are depreciation limits for various vehicle types. Consult with your tax professional.
- Software. This is a rapidly changing arena. The old school software where you paid large amounts upfront is rapidly changing to SAAS. SAAS is software as a subscription. So you pay a monthly fee instead of paying lump sums.
- Land. Land is an asset that does not depreciate.
- Buildings. Capitalize them.
- Leasehold expenses. Capitalize
- Office Equipment. Capitalize it.
- Leased Office Equipment (Copiers). Pretty good chance that it’s a capitalized lease, or that you end up owning it after the lease is completed. Then it’s really a loan or a payment plan. A true lease is when you don’t end up owning the assets at the end of the lease. Talk to your CPA about the tax consequences.
- Warehouse equipment. Capitalize.
- Retail Shelving or Fixtures. Capitalize.
- Flooring. Yup, replacing carpeting is a capital expense.
- Remodeling. Capitalize
- Home Office? yes. Make sure you are incompliance with tax rules for your home office, though. People get into trouble with this one because they get carried away. Be safe and conservative.
- Business Suits? Those are not a business expense!