In 2020, the COVID-19 pandemic sent millions of workers home, leaving countless offices throughout the country filled with unused furniture. While the pandemic certainly took its toll on these industries, a rise in at-home work and an eventual return to offices ushered in a significant increase in the sale of office furniture. Office chairs saw a 74.8% sales increase, while desks and bookshelves saw a 62.8% and 38.1% increase, respectively.
For those in the know, these numbers might be unsurprising. After all, investing in new office furniture can make a world of difference in sustaining productivity. While investing in something that can enhance productivity might seem like a simple business decision, things can get a little more complicated when it comes to categorizing that furniture on a balance sheet. In fact, when creating your balance sheet, you may wonder, Is office furniture an asset or expense?
In this blog, we’ll discuss the difference between assets and expenses, detail important distinctions for classification, and offer tips on how to use the U.S. internal revenue code to your advantage when classifying your office furniture collections. We will equip you with all you need to know before you start your office space design project.
What is an Asset?
In financial accounting, an asset is anything of value owned by a company that can be converted to cash.
Assets can be either tangible or intangible:
- Tangible assets – If an asset is tangible, it must be categorized as either current asset—expected to be sold or consumed within the fiscal year—or fixed—expected to be used over time.
- Intangible assets – An intangible asset, on the other hand, are more difficult to valuate and include such non-physical items as patents, copyrights, trademarks, and software.
Because office furniture is made to last more than one year, it’s usually deemed a fixed asset and must be depreciated over time.
Can I write off my furniture on my taxes? In accounting, depreciation allows a company to write off the value of an asset through the duration of its useful life, which can help absorb the cost of expensive items like office furniture and vehicles.
What is an Expense?
Unlike assets, which add value to a business over time, an office expense is typically the resources necessary to the running of a business in the short term. Put simply, if office furniture is a business asset, then office supplies can be categorized as a business expense because they’re less expensive items used during the course of annual business operations.
Office supply expenses might include:
- Printer ink
In accounting, an expense is an operational cost incurred in order to generate revenue for a company. For this reason, the Internal Revenue Service (IRS) allows businesses to write off certain tax-deductible expenses on their income tax returns, thereby lowering their tax liability for the fiscal year in question.
Here’s where things get a little tricky: While office furniture is typically classified as an asset on the balance sheet, its depreciation over time is actually recorded as an expense on the income statement, leading to tax deductions over time.
The Exception to the Rule
As with most things accounting-related, there is an exception to the rule. By using Section 179 of the U.S. internal revenue code, a business can take an immediate expense deduction on depreciable business equipment, like office furniture, instead of capitalizing it as a long term asset and depreciating it over time.
In the fiscal year 2021, the maximum deduction allowed by the IRS under Section 179 was $1,050,000, while the maximum amount a company can spend on deductible equipment is $2,620,000.
Depending on your business’ capitalization limit—an internal number used to determine the threshold between expenses and assets—you may want to use Section 179 to your advantage while purchasing office furniture, as you could receive a significant immediate tax break.
For small businesses and startups, in particular, this can soften the blow of purchasing high-quality office furniture and equipment that will help the business grow over time.
However, before you choose to take this route, consider doing the following:
- Consult with your accountant.
- Ensure that the equipment in question will be primarily used for business purposes.
If you’re a self-employed person who works from home, you’ll need to set up a dedicated home office in order to claim the home office tax deduction on your return.
Furnish Your Office With Juniper
Office furniture can be expensive, but declaring it as an asset and expensing it over time or taking an immediate deduction under Section 179 can offer your business the security it needs to make the investment.
When it comes time to office furniture solutions, choose Juniper. We have over 100 years of experience helping business owners, managers, and home-office workers like you furnish their workspaces in a way that inspires productivity, exudes professionality, and ensures comfort.
Whether you’re looking to add an office computer desk and chair to your home office or outfit your company’s shared workspace with meeting office pods, reception desks, and workstation dividers, we have the expertise and resources you need to get the job done.
Investopedia. Depreciation. https://www.investopedia.com/terms/d/depreciation.asp
Investopedia. Section 179. https://www.investopedia.com/terms/s/section-179.asp
Statista. Office furniture sales increase in the United States during the coronavirus pandemic in 2020, by category. https://www.statista.com/statistics/1229454/united-states-office-furniture-sales-increase/
U.S. News & World Report. Can You Take the Home Office Tax Deduction? https://money.usnews.com/money/personal-finance/taxes/articles/guide-to-home-office-tax-deduction