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Should I Expense my Equipment Purchases?

Did you buy equipment in 20hile the idea of expensing it all immediately to save on taxes sounds enticing there are benefits lost and even disadvantages to doing so. Instead of writing off the entire cost of your asset in the first year, there is a process called "depreciation." The idea behind this is assets have a standard typical life span based on its placement within a category (building, computers, office furniture, automobiles, e.t.c). Rather than deducting the entire amount in the year of purchase depreciation allows for several benefits that will boost your company's numbers: - If you paid cash for your equipment your cash balance will decrease but your asset balance will increase, offsetting the cash you paid - If you paid with a company card or loan, recording the equipment as an asset will offset the debt (liability) you now owe. - Rather than having a large expense to offset some of your earnings in that year alone you'll offset those earnings in smaller amounts but for several years. When providing the balances of your business (financial statements) to a bank or investor you want to show evidence of strength and stability, preferably with more cash and assets than expenses and debt. So when should you simply write off the entire purchase as an expense? It's honestly up to you, the business owner, within reason. If you're a fresh start-up with little revenue then you may want to depreciate as much as you can, setting your limit to expense anything under $500 while the company generating several hundred thousand a year may expense anything under $1,000. Currently the IRS limits are set to $2,500 before you're required to depreciate but as a business owner you have some freedom to choose. If you'd like assistance with depreciation we provide one-time calculations for those who manage their finances and taxes on their own.

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