Capital Expenses You must capitalize some costs rather than deduct them. These costsare a part of your investment in your business and are called"capital expenses." Although you generally cannot take a current deduction for acapital expense, you may be able to take deductions for these costsover a period of years as explained later under CostRecovery. Albergo poloniaKinds of Capital Expenses You must capitalize the following costs. Going into business. The costs of getting startedin business, before you are authorized to start selling your company'sproducts, are all capital expenses. These include the cost ofexploring different direct-selling opportunities, the cost of anytraining you must have before becoming a direct seller for yourproduct line, any fees you must pay to the company to become a directseller, and similar costs. See chapter 12 of Publication 535 forinformation on how to treat these costs. Business assets. The cost of any asset (property)that will last substantially beyond the tax year it is placed inservice is a capital expense. Examples of business assets include:office furniture, business vehicles, and storage shelves. SeeCost Recovery, later. Improvements. The costs of making improvements toa business asset are capital expenses if the improvements add to thevalue of the asset, appreciably lengthen the time you can use it, oradapt it to a different use. However, normal repair expenses arededucted as current business expenses and are not capitalized. Forexample, if you have a car you use only for business, maintenance andrepair costs, such as tune-ups, new headlights, or brake repairs, arebusiness expenses. The cost of overhauling the engine, however, is acapital expense. Demonstrators If you keep your company's products on hand to show to potentialcustomers, their cost may be part of the cost of goods sold, a capitalexpense, a business expense, or a personal expense, depending on thecircumstances. The cost of a product you use yourself is a personalexpense, even if you occasionally show it to prospective customers. Example.Sheila is a direct seller who uses many of her products in her ownhome. When potential customers come to her house, she can show themdrapes she bought from the company, as well as her lawn chairs,toaster, grill, tea set, and spice cabinet. By showing these items inher own home, she hopes to interest people in buying from her companyor in becoming direct sellers themselves. Sheila cannot take deductions for the cost of any of theseproducts. Because she uses them in her own home for personal reasons,their cost is not a cost of doing business. One year or less of use.If you have a product that you use as a demonstrator for one yearor less and the demonstrator itself is not available for purchase byyour customers, its cost is a business expense. See BusinessExpenses, later. If the demonstrator itself can be bought by your customers, includeit in your inventory of goods for sale. Example 1.Constance is a direct seller of kitchenware. Customers must orderitems from a catalog, but she keeps at least one of each type on handto show buyers. When her product line changes and an item isdiscontinued, she either starts using the demonstrator in her ownkitchen or tries to sell it. When she had a garage sale, she sold anumber of unused demonstrators. Constance includes her demonstrators, including those fordiscontinued products, in her inventory of goods for sale. When shesells a demonstrator, including those she sold at the garage sale, sheincludes the income in her gross business receipts. When Constance starts using a demonstrator in her own kitchen, itis a withdrawal of inventory for personal use. She subtracts the costof the item from her purchases for the year, as discussed underCost of Goods Sold, earlier. Example 2.hotel rooms KrakowLydia sells needlework kits at sales parties. She has catalogs anda number of kits to show customers. She uses these kits to demonstratevarious needlework techniques. The demonstrator kits last less than one year and are not sold tocustomers. Some are ruined and thrown away. Their cost is a businessexpense. More than one year of use.If you use a demonstrator for more than one year, its cost is acapital expense. However, if you expect to eventually sell thedemonstrator, include it in your inventory of goods for sale. Example 1.hôtels VeniseMike sells educational books door-to-door. He carries copies of thebooks to show. If someone wants a book, he takes a deposit anddelivers the book at a later time. Because his product line changes little from year to year, Mike canuse a book as a demonstrator for a long time. Although he periodicallyreplaces his demonstrators with new ones and sells the old ones at adiscount, he has kept some books as demonstrators for up to 3 years. Because Mike eventually sells his demonstrators, they remain partof his inventory of goods for sale. Example 2.Janet sells the same line of educational books as Mike inExample 1. Unlike him, she tries to use her demonstratorsas long as possible. She puts the books in plastic jackets to protectthem, and ordinarily only stops using them as demonstrators when thecompany comes out with a new edition. Janet never sells the olddemonstrators. She can recover the cost of the books she uses asdemonstrators as discussed under Cost Recovery, next.