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Capital Expenses

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Capital Expenses or Expenditures are payments by a business for fixed assets, like buildings and equipment. Capital expenses are not used for ordinary day-to-day operating expenses of a business, like rent, utilities, and insurance.

Another way to consider capital expenses is that they are used to buy assets that have a useful life of more than one year.

For example, if you buy office supplies for your business, that purchase is an operating expense, because office supplies don't typically last more than one year (although you may have those boxes of staples lying around for a long time). On the other hand, if you buy office furniture, it is expected that it will last longer than a year, so you are buying a fixed asset, and that purchase is considered a capital expense.

For tax purposes, capital expenditures are typically depreciated, but under Section 179 of the IRS code, under certain circumstances some capital expenditures may be considered current operating expenses.

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