Managing business costs is vital to every company’s success, and claiming all the possible tax deductions for business expenses is an important part of that cost management. This third article on the tax deductibility of business expenses, looks at the costs of buying and repairing property such as buildings, machinery, computers and furniture.
Business expenses are usually deductible if they are laid out to earn income and are considered reasonable in the circumstances. But not all expenditures are created equal. Some can be fully deducted in the year they are incurred. Others, if they create something of lasting value, must be deducted over more than one year. General rules determine the difference between these types of expenses, known as current and capital expenses respectively, but it’s not always clear how these rules apply.
General rules say renovations and expenses that extend the useful life of property or improve it beyond its original condition are usually capital expenses; an expense that restores a property to its original condition is usually a current expense. For example, the cost of repairing wooden steps is a current expense; the cost of replacing those wooden steps with concrete ones is a capital expense. Similarly, an expense that provides a lasting benefit is usually considered a capital expense, such as putting vinyl siding on the exterior of a wooden building; painting the exterior of a wooden building is a current expense because it usually recurs after a short period.
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