A Simple Tax Mistake: Mixing Equipment and Supplies

Small Business Financing

Both first-time and experienced business tax filers get tripped up by which expenses are considered equipment vs. supplies. Supplies include things that you use during the year (e.g. printer paper, pens, toner cartridges). Equipment (i.e. capital expenditures) are typically higher-value items that will last significantly longer than one year. For example, a new computer, cubicles, printer, and a fax machine are examples of equipment.

When it comes to equipment, there are a couple of approaches: You can write off a portion for each year the appliances are in use, or write off the full amount — there’s a max limit here — for the year you purchased it. So, if you bought a few new laptops for the business in 2014, you can write off the full price with your 2014 return — but you’ve got to report these purchases as a capital expenditure by filing Form 4562.

If you mistakenly deduct your equipment or capital items as supplies, the IRS could determine that you improperly characterized the expense and that you’re not entitled to the deduction.

Learn more about Tax Benefits here.