Loan Collateral: How Are Business Assets Categorized?
Business assets are essentially anything you purchase for the exclusive benefit of your company. They can be anything from a piece of furniture to a company vehicle. It is crucial to keep track of all your assets so that at the end of the year, everything is itemized correctly. You will also be able to write most items off as business expenses. In order to take care of your taxes correctly, you need to know the different types of assets out there.
There are two main types of assets you need to be aware of. The first is referred to as current assets. These are items you plan on selling within a year in order to make money for your business. For example, if you own a store, then your inventory would be a short-term asset because you are planning on selling those items in a short amount of time. More short-term business assets include receivables, which are any debts owed to you. You are planning on having those debts paid relatively soon, so you can write them off.
The other variation is called non-current assets. These are items you are purchasing for your business that you do not plan to sell within a year. Another term for these types of assets is capitalized assets because you are planning on capitalizing on these items for a long amount of time. The main example of this type for your business will be the building you have purchased to do business in. Other forms of property would also fall within this category, including vehicles and any equipment you buy in order to do business.
For non-current assets, it is crucial to bear in mind the concept of depreciation. As an example, consider a company vehicle. You might purchase it for $12,000, but it is not going to retain that value over the years. Each year, you will be able to write off your vehicle for tax purposes, but you cannot write it off for $12,000 every year. The value will go down annually. You will need to calculate accordingly in order to make sure all your forms are accurate.
Keeping finances in check is crucial for every business, especially smaller business that can really benefit by taking advantage of as many tax breaks as possible. Many things qualify as business assets, so take inventory of everything you purchase and own. When tax season rolls around, you will be so thankful you took the time.