I would like to get your advise whether I should expense or capitalize furniture that are bought for Executive rental apartment for a business trip (might last a year) as well as other things (bed, mattress, kitchen tools etc.) that need to furnish the apartment. If expensing, what should be an appropriate expense account for it? Our policy now is that everything under $3,500 gets expensed right away. Items over $3,500 get capitalized and depreciated on straight line for book, and MACRS for
Expensing vs Capitalizing Furnitures
Answers
This sounds like it all falls under the limit, so expense it.
"Where to" depends on how you set up your GL. I'd personally want to capture it under non-salary headcount related expense, akin to travel. Note, if this is in pursuit of revenue (travelling consultant), then I'd like to capture it in the COGS for the project (but tagged same as above).
Are you speaking for yourself, that you are going to purchase furnishings while you inhabit an executive rental apartment, I ask if this is personal because you mention a particular trip.
You need to take a look at the business purpose definitions. These things might turn out to be non deductible expenses depending on what they are. Most executive apartments are furnished.
Or do you operate a business renting executive apartments and you are asking about capitalization of furniture you also rent?
I will not provide tax advice on the internet but I have tried to point you in the right direction. You really have not given us enough information, nor should you in the context of the internet, to be able to answer the question fully.
@Keith: Thanks so much for your response. The purpose of our manager's business trip is for our new office move. Since the project might last more than 6 months, we figure out it's better for our budget if we rent an apartment for her than to stay in the hotel (which costs $200/night).
@ Valerie: The apartment is for one of our upper managers from headquarter office (from a foreign country). Her business trip is for our new office move here in the US (which is a big project). Sorry for the confusion: the apartment is rent for one of our executives not that we rent an executive apartment. The apartment that we rent is only furnished with kitchen and that's all (no bed, sofa etc.).
Since the initial use is expected to be less than one year, I would treat this as a prepaid expense and amortize over the period of the project. If after the project you decide there is a future use for the asset(s) / plan on store them, then you can consider putting on the books as a fixed asset and reclassify with a longer life, etc. If you dispose of after the project ends, net the proceeds against the costs that have flowed through the P&L.
This sounds to me like a special project cost and thus would be more beneficial to capture the costs sooner and within that distinct project; as opposed to a general expense that when capitalized would burden future P&L year(s) with a long term asset that then may have no relevant business purpose.
Filed Under:
FP&A