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laurakan
Level 3

capitalizing a multi-year but very small expense

Hi all,

 

This is not a "how do you do this in QBO" question but rather a "how do you handle this for your (or your client's) business" question:

 

How do you handle multi-year but very small expenses? For example, the company registers a domain name for 10 years and pays $150 total. This is way under the IRS capitalization threshold but spans many years so cannot be expensed all at once.

 

The business is cash basis and located in the US.

 

I realize that the business will benefit from this asset over all of the 10 years. And yes, it's just one small expense, but when there are a dozen or more, the reports start to get messy, so I'm wondering if there is a more elegant way to handle it then as a prepaid expense. Certainly the prepaids can be adjusted just once a year to cut down on clutter, but are there other options as well? Thanks!

Solved
Best answer June 27, 2022

Best Answers
Teri
Level 9

capitalizing a multi-year but very small expense

Your company should establish a capitalization policy that you follow consistently. For example, ABC Company capitalizes expenses as assets that meet the following minimum criteria of $1000 and useful life of > 1 year, etc. The cost would need to meet both criteria to be worth putting on balance sheet to amortize over multiple years. I do not know of any company that would consider capitalizing a $150 expense over 10 years or even just a year.

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2 Comments 2
Teri
Level 9

capitalizing a multi-year but very small expense

Your company should establish a capitalization policy that you follow consistently. For example, ABC Company capitalizes expenses as assets that meet the following minimum criteria of $1000 and useful life of > 1 year, etc. The cost would need to meet both criteria to be worth putting on balance sheet to amortize over multiple years. I do not know of any company that would consider capitalizing a $150 expense over 10 years or even just a year.

laurakan
Level 3

capitalizing a multi-year but very small expense

I definitely agree that it doesn't make sense to capitalize such a small expense. I'm just not sure how to handle it otherwise. I'll check with an accountant, as I understand no one here is in a position to give definitive advice. (I just thought maybe someone would share what they do.) Thanks for your response.

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