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Expense vs. Depreciable Asset

What are some of your thoughts or general guidelines that you employ to settle something like the following...

If in business, and I spend $2.95 on a cheap screwdriver, I'm going to expense it even if the thing ends up lasting 10 yrs. If on the other hand I buy a $50K Bobcat, then of coure it's an asset that I will have to depreciate over 3 or 5 years or so. The extreme cases are easy. But what about in the middle? What about an $80 hammer or a $300 power tool?

Life-expectancy is the main "official" criterion... but no CPA is going to demand his client expense his favorite $18 tape measure that he expects to last 10 yrs in his car glove-box. So cost is sort of an unofficial secondary criterion.

What are your cut-off points for this secondary criterion? Pretend I come into your office with my tool box. All the tools are expected to last 7 or 10 years. But some cost $5, some cost $500, and some others are in between. However arbitrary, what are your own guidelines?

Thanks.

Reply to
studylogic06
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It depends on the size of the business and the amount of tool expenditures but it would not be unreasonable for a small business to have a fixed asset capitalization rate cutoff of $400. or $500. This would end up expensing most tool purchases and not placing them on a fixed asset depreciation system. There are some tax guidelines and you would have to stick with one policy consistently for all tool purchases.

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Reply to
Steve

wrote

It really depends on the size of the business, how those small items are purchased (individually or at once), and what the business owner is trying to accomplish. I hear-tell that the utility companies capitalize and depreciate $3 trash cans. Then I hear about some businesses that will expense out anything less than $1000. Shit, my whole first office (sans the computer) cost less than a grand to furnish (pretty sure it was "used" everything).

And if you are trying to get the balance sheet to look like you actually ~own~ something, and that it might impress the lender (and actually look normal) to see furniture, fixtures, equipment, machinery, etc on the books instead of a big fat $0 where fixed assets reside.

Reply to
Paul Thomas, CPA

Correction:

But seems you guys knew what I was getting at anyways... thanks for the input.

Reply to
studylogic06

it also depends on if/how the business wants its income statement impacted.....one can shelter taxable income from the irs by expensing instead of capitalzing items for tax purposes....if ya get my drift......some profitable business love to expense big ticket items.....

snipped-for-privacy@yahoo.com wrote:

Reply to
~^ beancounter ~^

see the accounting topic "window dressing"....

~^ beancounter ~^ wrote:

Reply to
~^ beancounter ~^

Reply to
TKnTexas

i have a client with such excess earnings, they love to expense and keep the shop @ "state of the art" levels .... expensing a lot to "repairs and maintaince" ......

TKnTexas wrote:

Reply to
~^ beancounter ~^

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