 Deduction
Details - Assets vs. Expenses
By Debbie Patterson - Odessey Business Services
The snow is here and even thought it probably won’t stay at this
point, it has stirred up those feelings for big spending. It is the time to hit the stores
looking for deals on the “Big Ticket” purchases. The smart businesswoman will
not only consider the personal big ticket purchases, but also those that are needed for
growing her business and getting the most out of her deductions at tax time.
The last quarter of the year is the best time to be acquiring Assets.
Because of the ‘Half Year Rule’ that applies to the depreciation on new
purchases, the end of the year gives us the best deduction of depreciation for our new
assets. On the first year of an assets life, the depreciation that can be deducted is only
half of the depreciation calculated. Depreciation is prorated by date, and then the
‘First Year Rule’ is applied on top of that.
A grey area for many small business owners is the difference between
Assets and Expenses.
An Expense is a cost of doing business that relates to a consumable
product, usually under $200 and can be deducted 100% from revenue.
An Asset is a ‘Big Ticket’ purchase of a longer life item
valued over $200 - generally. This cost is not deducted from revenue, but is Depreciated
or Amortized for the wear and tear, and the depreciation is expensed. The cost is offset
by the increasing of Assets.
The difference between an Asset and a 100% Expense relates to dollar
value and life use. A dollar limit that draws the line usually starts at $200.00 and can
go up from there depending on the size of a company. Assets increase net worth, while
expenses are used against revenue.
One example is leasing verses buying a big-ticket item. If you were to
lease a computer, the lease payments would be considered an expense, less the GST of
course, since all leases have GST applicable. But if you were to buy a computer system, it
would be considered the purchase of an Asset, thereby increasing your net worth. The only
expense would be the depreciation, or wear and tear of the item, based on the set rate of
the class of that Asset. So even thought the purchase of an Asset won’t decrease the
taxes you may have to pay, it is an investment in your businesses net worth, and the best
time of the year to make that investment is now.
Debbie Patterson is the owner of Odessey Business Services & offers
services to consult & educate in the growth & understanding of your business.
Visit www.odesseybusiness.com
for details on the services that suit your company’s growth stage best.
Or call directly at 403. 816.5098. |
