Capitalizing vs. Expensing: How Your Business Should Treat Big Purchases

When your business buys something, the IRS has two ways it can be recorded:

1. Expense it immediately (deduct the full cost this year), or

2. Capitalize it and depreciate it (spread the deduction over several years).

Why does this matter?

Not every purchase can be written off right away. The IRS requires certain assets—like vehicles, equipment, computers, tools, and furniture—to be capitalized if they are expected to last more than one year. Capitalizing means the cost is recorded as an asset and deducted over time through depreciation.

General Rule of Thumb:

If it costs over $2,500 and is expected to last more than 12 months, it usually must be capitalized. Smaller purchases and items consumed within a year can typically be expensed immediately.

What this means for you:

• Big purchases (vehicles, equipment, machinery, computers, etc.) will go on your Balance Sheet and be depreciated.

• Everyday operating costs (office supplies, small tools, subscriptions, repairs, etc.) are expensed right away.

• If you're unsure, just upload the receipt to your bookkeeping portal — we’ll categorize it correctly.

Why some clients don’t get a full write-off right away:

Even though Section 179 and Bonus Depreciation sometimes allow large deductions upfront, they still follow capitalization rules. We evaluate your specific tax situation each year to determine how much of an immediate deduction is in your best interest.

In short:

You don’t need to decide whether something should be expensed or depreciated — just upload your receipts. We’ll apply IRS rules and make sure your tax deductions are optimized.