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What is the difference between capital and deductible expenses?

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What is the difference between capital and deductible expenses?

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Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize.

  • Business start-up cost (See the note below)

  • Business assets

  • Improvements

Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses.

Deductible Expenses

If you have deductible expenses that qualify as miscellaneous itemized deductions, you can deduct certain of those expenses only to the extent that they exceed 2% of your adjusted gross income. For an explanation of deductible and nondeductible expenses, refer toPublication 529, Miscellaneous Deductions.

There are three types of expenses that are subject to the 2% limit: unreimbursed employee expenses, tax preparation fees and certain other expenses.

Certain unreimbursed employee expenses are deductible as miscellaneous itemized deductions on Form 1040, Schedule A (PDF),Itemized Deductions, or Schedule A in Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. To be deductible, the expense must be:

  • Paid or incurred in the tax year

  • For carrying on your trade or business of being an employee, and

  • Ordinary and necessary

 


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Views: 872 Created on: Jun 15, 2013