Capital expenditures are payments used to protect company assets that will be used for more than one year. Examples include buildings, machinery, and shelves. Tax incentives are offered to encourage companies to purchase long-lasting assets. Professional accountants can help identify applicable deductions.
Also known as capital expenditures, capital expenditures are payments that are used to protect company assets that will be used for more than one calendar year. One of the most common examples of capital expenditure is the purchase of a building or equipment used in the production process for several years. In addition to real estate and machinery, other types of purchases may also qualify as capital expenditures, assuming the cost is spread over a long period of use.
While many companies employ a similar core of capital expenditures, there are examples of capital expenditures associated with specific types of industry. For example, a bookstore purchasing new shelves to display items carried into the store would be considered a capital expense, as the shelves are critical to the function of the business and will likely last for many years. A taxi is considered a capital expense for a taxi company, as the asset is essential to the operation of the business and is expected to be in continuous service for more than a single twelve month period.
An important difference between a capital expense and other types of expenses is the durability of the purchased item. Luminaires purchased for buildings owned by a company would be considered a capital expense, as they are expected to provide service for more than a year. At the same time, an expense such as a monthly gas or electricity bill would be considered an operating expense rather than a capital expense. This is because the utilities have already been used up in the last month and cannot provide any further benefits to the business.
In many countries, there are tax incentives offered in order to encourage companies to purchase assets that have a long life. A business may choose to purchase property as part of its overall operating strategy and be able to enjoy tax benefits associated with the mortgage used to secure the property. As long as the company is paying off the mortgage, those tax breaks continue, although they may decrease with each successive year. There are also situations where the business can earn a tax break on a particular capital expense, if that expense was due to the need to replace equipment deemed necessary for the efficiency and productivity of the business operation. Professional accountants can help the business owner identify any applicable deductions in connection with any of the capital expenditures and ensure that the deduction is claimed in accordance with guidelines set forth by the appropriate tax agency.
Protect your devices with Threat Protection by NordVPN
