Building Your Business Operations & Success Accounting Business Assets and How They Affect Your Business Taxes By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 19, 2022 Fact checked by Daniel Rathburn Fact checked by Daniel Rathburn Daniel Rathburn is an associate editor at The Balance. He has over three years of experience working in print and digital media as a fact-checker and editor. Daniel holds a bachelor's degree in English and political science from Michigan State University. learn about our editorial policies In This Article View All In This Article What Are Business Assets? How Does Depreciation Affect Business Assets? How Does the Sale of Business Assets Affect Taxes? How Are the Value of Assets Determined During the Sale of a Business? How Do I Value Business Assets After a Disaster? How Do I Keep Records on Business Assets for Tax Purposes? Photo: Monty Rakusan/Getty Images Your business assets are a big part of your business success. Using the assets of your business, you create products and services that are bought by customers to create your income. When you buy or sell business assets, these transactions affect both your financial position and your tax situation. This article answers five common questions about how business assets affect your business taxes, with information about depreciation, capital gains, and how to value assets. Key Takeaways You may be able to accelerate depreciation, giving you a tax break in the first year after you buy and begin using a business asset. When you sell a capital asset, you may have a short-term or long-term capital gain or loss, depending on how long you owned the asset.To report a disaster loss on your tax return, you’ll need to have information on the value of each business asset both before and after the disaster.In the sale of a business, each asset is valued separately and all are combined to get an net capital gain. Keep complete and accurate records on all business assets to verify deductions for tax reporting. What Are Business Assets? Business assets are anything of value owned by a business. Different types of business assets include cash, receivables, inventory, furniture, equipment, and real property (land and buildings). Business assets may be tangible (with physical form, like a piece of equipment) or intangible (with no form, like a copyright or patent). For tax and accounting purposes, assets are divided into several categories for different purposes: Short-term assets, used up within a year, like office supplies Long-term assets, used over several years, like office furniture, equipment, and vehicles How Does Depreciation Affect Business Assets? You can deduct the cost of some business assets by spreading out the cost over time, using a process called depreciation. Typical assets that can be depreciated are vehicles, equipment, and furniture. Typical assets that can be depreciated are vehicles, equipment, and furniture. Understanding how depreciation works helps you make better business decisions on buying or selling assets. Only certain assets can be depreciated; they must: Be owned by your businessUsed to produce business incomeHave a set useful life Accelerated Depreciation The tax laws give some incentives to business owners to buy assets by allowing them to accelerate (speed up) deductions for business assets. A section 179 deduction allows a business to recover all or part of the cost of qualifying assets in the first year the asset is bought and used. Bonus depreciation allows an additional 100% deduction for certain types of assets in their first year of use. Note Section 179 deductions and bonus depreciation are significant tax savings for businesses. But both of them have limits and restrictions that may change each year. How Does the Sale of Business Assets Affect Taxes? In addition to depreciable assets, your business may have capital assets like land, buildings, and stock shares. Businesses use these assets for investment purposes. If you sell a capital asset for more than you paid for it, you have a capital gain, and you must pay capital gains tax on this gain. If you sell it for a loss, that’s a capital loss. How you calculate and pay capital gains taxes depends on whether the gain is short-term (held less than a year) or long-term (held for more than a year). Add up all the gains of both types to get a net capital gain for the year. How you enter capital gains on your tax return depends on your business type. Note The capital gains tax rate is 15% for most individuals and small businesses and 20% for higher-income individuals, different rates from ordinary business and personal income tax rates. How Are the Value of Assets Determined During the Sale of a Business? Selling a business may mean selling the business stock, or it might mean selling the business assets. The typical sale of a small business usually means selling off all the assets, with each asset value set for tax purposes. This means you must look at the sale of each asset to figure out how it will affect your tax situation: Capital assets (investments) for capital gains or losses Depreciable property, like vehicles or equipment, for depreciation Real property (land and buildings) Inventory for ordinary gains or losses Note Get an appraisal from a qualified appraiser for all business assets before you sell them, both for use in the sale and for tax purposes. How Do I Value Business Assets After a Disaster? You may be able to deduct losses to your business from federally declared disasters in a tax year.. But you can’t deduct losses covered by insurance. To determine the amount of a disaster loss for your tax return, you must collect information on each asset in your business. The information you need to collect includes: The cost basis of each asset before the disaster The decrease in fair market value of each asset as a result of the disaster Then you will have to collect information from insurance payments in order to determine the actual disaster loss, for reimbursement purposes. You’ll also have to prove that you owned the asset or had a lease on it, the type of disaster and when it occurred. The loss must be the direct result of the disaster. Note If the amount you receive from insurance or other reimbursements is more than the cost or adjusted basis of the assets you may have a capital gain. How Do I Keep Records on Business Assets for Tax Purposes? For tax purposes, you must keep good records on your business assets, if you want to take deductions for asset depreciation and for capital gains and losses on selling business assets. Starting with the purchase of the asset, keep records on every transaction relating to your assets, including annual depreciation, repairs or modifications to assets, and other transactions. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Publication 946 How To Depreciate Property," Page 3. IRS. "Topic No. 704 Depreciation." IRS. "Additional First Year Depreciation Deduction (Bonus) - FAQ." IRS. "Topic No. 409 Capital Gains and Losses." IRS. "Sale of a Business." IRS. "Topic 515 Casualty, Disaster, and Theft Losses."