Expense or Capitalize?

Author: Jennifer Kowal

Understanding whether an expense should be capitalized or immediately deducted as an expense is a tax question faced by nearly every business. Taxpayers are often required to capitalize otherwise deductible transactional expenses such as legal fees and appraisals, and even more complicated rules apply to manufacturers and producers of tangible property in determining cost of goods sold.

This course covers the general tax rules requiring the capitalization of expenses that create an asset with a useful life that extends substantially beyond the taxable year, the rules for capitalizing transaction costs, and the section 263A regulations that apply to manufacturers and producers of tangible property. It also covers how the change in accounting method rules apply to deducted expenses that should be capitalized.

Publication Date: February 2023

Designed For
Tax practitioners at all levels who provide advice and return preparation on expenditures that may potentially be capitalized.

Topics Covered

• Tax rules on capitalizing expenses with benefit that extends substantially beyond taxable year
• Capitalization of costs relating to acquisition of tangible and intangible assets
• Application of regulations under section 263A to manufacturers and producers of tangible property, and effect on cost of goods sold
• "New" section 263A "repair regulations"
• Applicability of change in accounting method rules to capitalization vs. expensing questions

Learning Objectives

• Recognize how to explain general rules determining when expenses should be capitalized
• Identify rules that require capitalization of transaction costs into basis of acquired assets
• Differentiate how section 263A requires capitalization of expenses into cost of goods sold
• Recognize how new "repair regulations" apply in common scenarios

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic familiarity with concept of capitalization of expenditures.

Advance Preparation
None