What is an ASSET and WHAT Makes it DIFFERENT from SUPPLIES?

Purchasing an ASSET is the easy part, but when it comes to Deducting an ASSET on your tax return, it must be reported differently than the other expenses such as SUPPLIES.

Did you buy a CB Radio, Refrigerator, a Truck or anything else to be used in your business that is expected to keep its value for more than 1 year and cost more than $100?

If you did, you purchased an ASSET for your business.

An ASSET is something that provides a current, future, or potential economic benefit for an individual or business or other entity and has the following characteristics:

  • FAIR MARKET VALUE EXCEEDS $100 WHEN PURCHASED
  • IS DESIGNED TO HAVE A USEFUL LIFE AND FUNCTION FOR MORE THAN 1 YEAR
  • IS OWNED (not leased/rented) BY YOUR BUSINESS
  • WAS PURCHASED NEW OR USED
  • WAS PURCHASED BY YOUR BUSINESS AND IS USED IN YOUR BUSINESS
  • Is both ORDINARY and NECESSARY to your business
  • ITS ORIGINAL VALUE (purchase price) DECLINES or DEPRECIATES over a specified amount of time
  • Can be DEDUCTED as an EXPENSE or DEPRECIATED over its life expectancy to REDUCE TAXABLE EARNINGS
  • Must be LISTED OUT SEPARATELY by PURCHASE/USAGE DATE, DESCRIPTION, TOTAL COST on your tax return.

Anytime you PURCHASE an ASSET, the above list of information must be recorded in your tax return so that it can be used to REDUCE YOUR TAXABLE EARNINGS. If your tax preparer knows that you purchased an ASSET, she will need and will likely ask you for this information, so keep it with your other tax documents.

 Also, be sure to KEEP THE RECEIPT for an ASSET for up to its useful life to help you to withstand any kind of unpredictable audit. 

 Once the ASSET is no longer USEFUL to your business, the ASSET needs to be properly removed from your tax return by adding the following information:

  1. The DESCRIPTION of the asset
  2. The DATE that it was removed from your business
  3. The REASON it was removed from your business
  4. The VALUE (Fair Market Value) it had at the time it was removed from your business

BE SURE to RECORD the above information for tax reporting of the ASSET on the DATE THAT IT IS REMOVED from your business. Give this information to your TAX PREPARER as well.

 I hope this was helpful and will HELP you FIGHT THE IRS if/when they come KNOCKING!

 Bonnie Dorsey

972-672-8850

www.Dorseytaxplace.com

 


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