Capital Asset

A capital asset is something your company owns and plans to own for a long period of time (usually longer than a year) that you use to make money. It includes tangibles and intangibles and movable and non-movable goods, such as real property, equipment; patents, goodwill, trademarks, and certain investments.

A capital asset isn’t something that your business sells as a part of day to day operations. A computer you use to work on company stuff is a capital asset. On the other hand if your business actually sells computers, then a computer is considered inventory.

On your balance sheet, capital assets are marked in the property, plant and equipment category. Sometimes these assets are only liquidated in worst-case scenarios, like if you go bankrupt. But sometimes capital assets are disposed of because you’re growing and need something better to replace it with, like a better computer.

Capital assets are a capital expense, according to the IRS. That means you can deduct the expenses during that tax year from your revenue and subtract that from your business income. Keep in mind, though, that most capital expenses aren’t claimed in full in the year they are purchased but instead are written off incrementally over several years, especially if it’s a huge expense.

 

EXAMPLE:

If I use this sports car to drive around to see my clients, doesn’t that make it a capital asset? Write that off, baby!