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Current expenses vs. capital expenses

While many small businesses are preparing to take some time off for the holiday weekend it is only a matter of time before the focus turns to tax planning for next year’s tax season. Indeed, some businesses pay their taxes quarterly throughout the year. However, others wait till they have tabulated all of their expenses, revenue and capital investments before paying taxes.

With that, there are considerable questions to be asked of both tax attorneys as well as accountants. This post will focus on the difference between current expenses and capital expenses.

Current expenses – These costs are fairly easy to track during the year and do not take much to identify when considering taxes. Essentially, current expenses are the costs that are incurred to keep a business running. These may include rent payments, utilities, supplies and copying expenses. When it comes to dealing with these expenses, a business can simply deduct these expenses from its gross revenue. More importantly, a business can deduct current expenses in the same year that they were incurred.

Capital expenses – These costs have to do with assets that are purchased that could appreciate over the life of the business. Examples include, real property, equipment, and vehicles. These types of assets could generate income for the business for years to come. Because of this, the IRS may view capital expenses differently from current expenses. As such, a business cannot deduct the entire amount spent on a capital asset in the year it was purchased.

To learn more about what can be deducted, an experienced tax law attorney can help.

The preceding is not legal advice.

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Law Offices of Robert T. Leonard, APC

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