Key Takeaways

  • Supplies vs. equipment differ primarily in usage length and tax treatment: supplies are short-term assets consumed within a year, while equipment is a long-term depreciable asset.
  • Examples of supplies: office materials (paper, ink, pens), cleaning products, and shipping materials.
  • Examples of equipment: computers, printers, vehicles, and office furniture.
  • Tax treatment: supplies are expensed immediately, but equipment must usually be capitalized and depreciated over its useful life.
  • IRS definitions matter for accurate reporting—misclassifying items can trigger audits or disallowed deductions.
  • Financing options differ: equipment often qualifies for loans or leases, while supplies are usually purchased outright.
  • Businesses should maintain clear records separating supplies and equipment to support deductions and ensure compliance.

What is the difference between equipment and supplies? That's a question many business owners ask themselves. In essence, supplies are a current asset that is usually used up within the year they are purchased. Supplies can include a number of things that are used in a business, including such items as:

  • Ink
  • Paper
  • Pens
  • Staples

Most of the time, supplies will be multiple small-ticket items, but when they are all added up, they can account for a decent amount of money throughout the year. Since most supplies will be utilized within a year of purchase, there are termed as a current asset that can be expensed in the year they are purchased. Supplies are considered to have a finite life, which means that once they are used, their purpose has been exhausted.

If the supplies are used for the manufacturing or sale of your product, such as shipping or packaging supplies, they will often be handled differently around tax time. Other items that can be considered supplies used for the production or manufacture of products include:

  • Chemicals used for manufacturing
  • Condiments and food supplies for a restaurant
  • Tape and boxes for packing

When supplies are used for the production or shipping of products, they are termed cost of goods when it comes to bookkeeping. These supplies will need to be inventoried at the beginning of the year so they can be calculated in the cost of goods section of your business's financials. In the manufacturing world, sometimes the terms supplies and materials are used interchangeably. Supplies often refers to nonmanufacturing items and materials are those that will be used for the production of items.

Business Equipment

Any item that costs over $200 or $300 is often considered as equipment by default. Equipment is classified as a long-term asset and usually refers to items that will last and be used longer than a year. Equipment in a business is often referred to as tangible property. Equipment covers a range of items and includes such things like:

  • Computers
  • Printers
  • Office furniture
  • Company vehicles

Because business equipment is utilized over a longer period of time, it often depreciates. Depreciation is taken as a business deduction. Sometimes, software that is expensive can be considered business equipment or can be termed as a depreciating expense.

If the software being utilized is subscription-based with a small monthly cost, it will often be recorded for accounting purposes as a utility or an expense. If the costs are higher, you can split them over a number of years. Equipment cannot include the land or buildings a business owns.

IRS Guidance on Supplies vs. Equipment

The Internal Revenue Service (IRS) provides specific definitions that help determine whether an item is classified as a supply or equipment. Supplies are generally items expected to be used within 12 months and are deductible as ordinary expenses. Equipment, on the other hand, is a capital asset—items like machinery, technology, or furniture that provide value beyond a single year.

For tax purposes:

  • Supplies are expensed in the year they are purchased.
  • Equipment must usually be capitalized and depreciated over several years, although Section 179 deductions and bonus depreciation may allow businesses to deduct large portions in the first year.

Office Expense Accounts

Office expense accounts will cover most of the businesses expenses that are necessary for a company's functioning, even if it is considered intangible property. Some of these types of expenses are:

  • Accounting software programs
  • Postage
  • Cleaning and janitorial services
  • Utility bills

When you create accounts for your business financials, you will want to make sure to separate office supplies from other expenses.

Financing Considerations for Equipment and Supplies

Businesses often approach purchasing equipment and supplies differently due to cost and financing options. Equipment—such as vehicles, heavy machinery, or computer servers—may require financing through loans or leases, which spread costs over time. Supplies, being relatively inexpensive and short-lived, are typically purchased outright from operating cash flow.

When deciding whether to finance:

  • Equipment financing can improve cash flow but adds debt obligations.
  • Supplies generally do not qualify for financing since their value is consumed quickly.

Properly categorizing purchases ensures businesses select the right financing strategies and claim appropriate deductions.

Equipment and Supplies for Business Use

When recording equipment and supplies on your business financials, it is always important to record items that are only used for business and not for personal use. For example, when buying equipment for your business — such as a computer — it must be used only for business and not for personal use. Even though it may not seem important to make this distinction, it becomes vital in the event you are audited by the IRS. You will be required to prove it is fully a business expense.

If you use business equipment for personal use, you can deduct a portion of the expense you can prove was used for business. Whenever you purchase business supplies or equipment, it is important to use a company bank account or credit card for recording purposes.

Common Misclassifications and Audit Risks

A common challenge for business owners is mistakenly recording equipment as supplies or vice versa. For example, purchasing a high-end computer for daily operations should be classified as equipment, not an office supply. Similarly, treating large recurring supply orders—like packaging materials—as equipment could distort your financial reporting.

The IRS pays close attention to these classifications. Misclassification may:

  • Lead to overstated deductions if equipment is improperly expensed as supplies.
  • Cause issues in the event of an audit, requiring documentation to prove accurate reporting.

To avoid problems, businesses should:

  • Keep detailed invoices and receipts.
  • Use consistent accounting policies across reporting periods.
  • Work with tax professionals to confirm treatment of borderline cases.

Always Be Honest

No matter what you do when recording business supplies and equipment, it is vital to always be honest. If you are audited and the deductions for your supplies or expenses seem to be inconsistent or unrealistic, you may be flagged by the IRS. The IRS notes that there is over $30 billion that goes in unpaid taxes due to an overstatement of such things as:

  • Exemptions
  • Adjustments
  • Credits

Maintaining accurate records is essential to manage supplies vs. equipment correctly. Businesses should create separate accounts in their bookkeeping system for supplies and for equipment purchases.

Best practices include:

  • Inventory counts for supplies, especially when they relate to production or shipping.
  • Depreciation schedules for equipment to track tax and book value.
  • Company credit cards or bank accounts dedicated to business purchases to avoid personal use confusion.
  • Annual reviews to confirm that assets are categorized and depreciated correctly.

Adopting these practices not only reduces IRS audit risk but also provides clearer financial insights into how resources are being used.

Frequently Asked Questions

  1. What is the main difference between supplies and equipment?
    Supplies are short-term items used within a year, while equipment is long-term property that provides value beyond one year and is depreciated.
  2. Can equipment ever be expensed in the year it is purchased?
    Yes. Through Section 179 deductions and bonus depreciation, businesses may expense eligible equipment immediately instead of depreciating over time.
  3. How do supplies affect taxes compared to equipment?
    Supplies are deducted as an expense in the year purchased. Equipment must be capitalized and depreciated unless special deductions apply.
  4. What are some common mistakes businesses make with supplies vs equipment?
    Misclassifying expensive, long-lasting assets as supplies or treating short-term items as equipment, both of which can cause reporting errors and IRS scrutiny.
  5. How should businesses track supplies and equipment separately?
    Use separate accounts, maintain receipts, record supply inventory, and create depreciation schedules for equipment to ensure accuracy and compliance.

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