Asset or Expense?
Asset or Expense? This is a major question to plagues business owners.
What is an Asset
When purchasing an asset, you will need to record:
- Date purchased
- Description to identify the asset type and be able to tell it apart from other assets when disposed of.
- Cost of the asset including delivery, setup, and other fees necessary for usability
Paper work on assets should be kept available from year to year until disposed of. Once disposed, which also needs to be reported, the paper work is filed away with the tax return.
Types of Depreciation
There are different types of depreciation which will need decisions based on other tax planning. You can depreciate some assets in full the first year. Base this decision on tax need along with future plans for the asset. If you buy a piece of equipment with intention of replacing it or selling it off prior to the 5-year life value determined by the IRS, you may not want to depreciate it in full. This should be a conversation you have with your tax preparer for each asset purchased during the year.