When you have a business asset, you can choose to capitalize the asset or depreciate the asset. What that means is you’ll get the choice of reducing the basis (your tax “cost”) of the asset for tax purposes, or simply using the purchase price as the cost.
When you pay money for an asset, the price you pay is known as your basis. When you go to sell that asset later, you’ll have a tax gain or a loss depending on whether you sold the asset for more or less than your basis. If you purchase a capital asset in your business, you can either capitalize it or depreciate it. If you depreciate the asset, you get to take a deduction in the form of a percentage of that asset based on it’s expected useful … Continue Reading »