Collect the facts at purchase
For each item, record the description, serial number, vendor, date purchased, date first used in the business, total cost including delivery, sales tax and installation, and how it was paid. Save the invoice and any financing agreement. Photos of the item and its label are cheap insurance.
The date the item was placed in service matters more than the date it was paid for. An item bought in December but not set up until January may fall into a different year.
Business versus personal use
If the item is used partly for personal purposes, such as a laptop or phone, estimate the business share and note how. Vehicles and some property have special rules. Do not treat the full cost as business if you know part is personal.
Equipment bought for resale is inventory, not equipment. Equipment for a rental is treated differently again. Make sure the purchase goes into the right category.
Repairs versus improvements
Routine repairs that keep an asset in working order are usually expenses. Work that extends life, increases capacity or adapts the asset to a new use may be an improvement that should be treated like a new asset. The line is not always clear, so keep the invoice and a description of what was done.
Ask the contractor to itemize invoices that mix repair and improvement work.
Financing and trade-ins
If you finance the purchase, the asset cost is the price, and the loan is a liability. Interest paid later is a separate expense. Do not record each loan payment as equipment cost. If you trade in old equipment, keep the paperwork showing the trade-in value, because it affects the cost of the new asset and any gain or loss on the old one.
Leases are different from purchases. Keep the agreement and check with your preparer on the proper treatment.
Pass the file to your preparer
At year end, send a list of all purchases over your chosen threshold, with the facts above and copies of invoices. Mention any items that were sold, scrapped or lost. Keep your own copy of the list in a fixed asset register that you update through the years.
The preparer will tell you what they need for each item and how it will appear on the return. Follow up on any questions while the details are fresh.
Example of a mixed invoice
Say a shop buys a machine and pays one invoice covering the machine, delivery, installation wiring and a service contract for the next two years. These parts may be treated differently: the machine, delivery and installation may be part of the asset's cost, while the service contract may be a prepaid expense. Ask the vendor to break out the lines.
A clear invoice turns a long discussion with the preparer into a short one.
Worked example with numbers
A $3,400 invoice covers a $2,800 computer, $400 of installation and software, and a $200 extended warranty. Keep the invoice itemized. Some of those parts may be treated differently, and the business-use percentage matters if the computer is also used personally. Suppose it is used 80% for business: the business portion of the computer is $2,800 x 80% = $2,240.
Whether you deduct that at once or depreciate it over years depends on rules and elections that change, so hand the preparer a file with the invoice, date placed in service and use percentage.
Mistakes that cost money
Assuming every purchase is deductible immediately. Losing the itemized invoice. Capitalizing a repair that should be an expense, or the reverse. Ignoring financing, where the loan is a liability and interest is separate.
Check your work
Keep an asset list: description, date, cost, business use, and where the invoice is stored.
Common questions
Is there a dollar threshold for treating purchases as equipment?
Businesses commonly adopt a written policy and the tax rules include safe harbors. Ask your preparer for the current approach.
Do I keep records after I deduct the cost?
Yes. You may need them if the item is sold, if the deduction is questioned or if use changes.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.