1. Business Equipment
2. Office Expense Accounts
3. Equipment and Supplies for Business Use
4. Always Be Honest

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.

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.

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.

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

If you need help with determining the difference between equipment and supplies, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.