Capital expenses

Capital expenses (or, capital expenditures or capex) are funds spent to create future benefits. A capital expense is incurred when a business spends money either to buy fixed assets or to extend the life or increase the value of an existing fixed asset. Capital expenses are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset as adjusted for tax purposes).

Capital expenses and taxes

Main article: Small business expenses and tax deductions

For tax purposes, capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred, and must be capitalized. The general rule is that if the property acquired has a useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question.

Included in capital expenditures are amounts spent on:

1. acquiring fixed assets
2. fixing problems with an asset that existed prior to acquisition
3. preparing an asset to be used in business
4. legal costs of establishing or maintaining one's right of ownership in a piece of property
5. restoring property or adapting it to a new or different use
6. starting a new business

See Also

• Accounting Hub

Source

This entry includes content from the following Wikipedia article: Capital Expenditures