By definition a capital expenditure is the purchase or upgrade of an asset such as property, industrial building, equipment, computer software or any other purchase that is considered a long-term improvement for your business. For example, when a farmer buys an additional piece of property for farming crops, it is considered a qualified capital expenditure because the property will be used for several seasons. These capital expenditures qualify for income tax deductions for the business owners.
Necessary equipment purchased for use in business operations are considered qualified capital expenditures. Equipment includes farm machinery, tools of the trade--such as mechanic's tools, computer equipment, telephone equipment, landscaping equipment--such as lawnmowers or snowblowers and all other tools needed during the normal course of business.
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The property may be consist of a building or piece of land, but it must be used as part of business operations. A golf instructor may purchase a piece of property to conduct golf lessons or a commercial fisherman may purchase land for boat, trailer or equipment storage. These purchases are qualified capital expenditures.
An often overlooked capital expenditure is computer software. Most businesses rely on computer software to maintain their records, whether for accounting, communication or scheduling. Computer software requires regular updates. New software programs are introduced. As the business grows, more software licenses may be required. These purchases are qualified capital expenditures because they benefit the business for more than a year and increase the overall value of the company.
Business Facility Improvement Costs
Office or building remodeling costs also are considered qualified capital expenditures. Included in remodeling costs is the purchase of new office furniture, replacing the building roof, flooring and lighting or making other structural improvements. Architect or designer fees, as well as the actual construction costs, are included. Also included in this category are security system installation or improvements, electrical system upgrades or replacements and drainage improvements.
Charges for credit card annual fees, professional development or licensing groups -- such as a state bar association for attorneys, copyright development costs, merger negotiation costs, lawsuit settlements, bond premiums and Security Exchange and Commission statement preparation costs all are qualified capital expenditures. (Ref 3)