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

 


Comments

Post a Comment

We enjoy friendly feedback and conversation at Your Tax Place. Thank you for joining in! We will make every effort to reply to your comments.

Popular posts from this blog

How To Organize Business Receipts for Taxes 2023

Image
How to Organize Receipts for Small Business  As a business owner, you have probably heard this statement over and over again:  KEEP YOUR RECEIPTS FOR TAXES!    Although this STATEMENT is TRUE, you should also KEEP the IRS in mind so that those RECEIPTS will count if an audit is required. Here are a few suggestions on how to KEEP THE IRS in mind when COLLECTING , STORING , AND PRESENTING those BUSINESS RECEIPTS. WHICH RECEIPTS ARE DEDUCTIBLE FOR MY BUSINESS? Owning, operating, and maintaining a business COSTS MONEY. But, when you buy things for the BUSINESS, they must be legally deductible. EXPENSES must be an ORDINARY AND NECESSARY EXPENSE  for your specific industry to be able to legally deduct it on your taxes. The WAY that you  STORE , ORGANIZE and PRESENT the receipts for business purchases as the PROOF will also be a consideration by the IRS to allow the deduction or not.  STORING and ORGANIZING...
Read more

5 Tips to Avoid Tax Filing Delays and IRS Rejection of Tax Return

Image
  5 tips to Avoid Tax Filing Delays and IRS Rejection of tax return When it comes to having your tax return prepared and successfully filed, you can easily AVOID these COMMON TRAPS that managed to cause IRS REJECTIONS and FILING DELAYS for several of my clients in this past tax season. TIP #1: IPPIN - Identity Protection Personal Identification Number  If you or your spouse APPLIED to the IRS to get this 6 DIGIT PIN number to prevent others from fraudulently filing your tax return, BE SURE that your MAILING ADDRESS is correct with the IRS AND WATCH FOR A MAILED LETTER FROM THE IRS in the beginning of the year that will contain this number. Without this number, YOU CANNOT FILE your tax return; PLUS , AT THIS TIME, it is FOREVER LINKED to your SOCIAL SECURITY NUMBER and cannot be removed or received EXCEPT BY MAIL or through your IRS account. TIP #2: FORM 1095-A for HEALTH INSURANCE purchased through THE MARKETPLA...
Read more

Sole Proprietor, LLC or Corporation- Which is the best for your business?

Image
 Sole Proprietor, LLC or Corporation Which is the best for your business? As a business owner, you should be aware of what each type of business entity offers in terms of taxes, liability protection, and control over the business. The easiest and most common business type is the Sole Proprietorship. As a sole proprietor, you automatically get the new (and misunderstood) responsibility of "self employment" taxes. Sole Proprietorship You have NO LIABLITY protection for your personal assets in case of a lawsuit You have COMPLETE CONTROL over how to run and manage your business There are not usually any start up fees required Most new businesses start out this way until they get a better education about the other options. LLC business type The LLC is also very popular choice among new business owners, but it is not always chosen for the right reason.  Some people claim that there are more tax advantages than a sole proprietorship. However, the truth is, an LLC does not differ...
Read more