Business Personal Property Explained and Its Relation to Taxes





Business Personal Property Explained and Its Relation to TaxesAs an owner, you can either rent or buy a property to run the business. One thing that many of you don’t know is that the business can have personal property. What does it mean? It is called a BPP or business personal property.

business personal property

These items are usually not affixed to the land and are moveable. Simply said, these can be anything except buildings and land (real property). These include the smallest items like a calculator to the biggest ones like machines.

All of them should be categorized as items used and purchased by the business. They are not nailed down either. The good news is that they are included in deductible business expenses, which can help you when filing annual taxes later.

Understanding the Nature

When it comes to variety, there is tangible and intangible personal property. The tangible one includes anything that can be touched or felt.

For instance, these include:

  • business equipment
  • furniture
  • goods
  • collectibles
  • vehicles

As for intangible ones, they are items that cannot be touched. These include:

  • bonds
  • securities
  • patents
  • trademarks
  • copyrights

 

There is also the listed property, which is considered special. This one represents any property that can be used for either personal or business reasons.

The good news is that business personal property is qualified as loan collateral. These items provide security for a business loan, so you can take advantage of them to get more money to expand your business.

Let’s take an example. You can get a loan to buy a car for business use. This loan is not categorized as a personal loan, but a business loan. Not to mention the loan interest is deductible, as it is considered as a business cost.

There is a weakness, though. BPP or business personal property deteriorates over time and they are mobile. No wonder, you should put more effort to ensure the bank gives away the loan.

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Business Personal Property and Amortization

Any purchase of personal property of business is a deductible business cost. In many cases, the purchase price is included in the first year of business purchases. Another story states that the item cost should be spread out over the durability or useful life of the products.

This process is called amortization or depreciation and all these items should be depreciated based on a schedule. For those that belong to listed property, an alternative method is used.

The process of business personal property depreciation calculation is a little bit complicated, so you are recommended to hire an accountant to do the task efficiently.

The Need to Keep Records

Whether your business has a single computer or a roomful of machines, you need to keep good records on those items (business property). From the time of purchase, you should take notes on each item of BPP.

These include the expense of the item and any amortization taken on them. Have no worries. The records are meant to back up any deductions and for your own use. The fact is those tangible business personal property becomes subject to certain taxes.

BPP Taxation in Both Local and State Government 

When it comes to taxation, the most common one applies when you buy the property. Most states or countries require that a sales tax should be charged on the sale of tangible personal property.

The tax is collected based on the purchase time except when you buy these from sellers located out of the state or when you purchase these from the internet. In this case, you need to pay the tax directly to the state.

In some cases, you need to pay an extra annual tax on BPP via a filing with your local authorities. The tax is based on the present value of the item. However, the tax rate, types of items covered by the tax, and annual filing details vary from one local authority to another.

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BPP Deductions on Federal Taxes

The IRS has a different point of view when it comes to business personal property. They look at BPP purchases as deductible business costs. By taking these reductions, you can deduce those purchases by 40% or even more.

According to the IRS, the purchases should be eligible for deduction on a federal tax return. So, what is the qualification? Those items should be both necessary and ordinary for the business.

The ordinary means any accepted and common expenses for the business. As for the necessary, these should be both appropriate and helpful for your business. What are other rules?

The personal property is deductible as long as it is used primarily for business. These include a desktop PC in your office and any items used in your business. What are not? A laptop that you bring back home for pleasure is not included.

Depreciation, Deductions, and Section 179

Well, you can learn more about the business personal property when it is related to federal taxes. For this purpose, you can find two categories of BPP. The first one is any items that will be used up within a year or less. The second category is any items that will last more than one year.

The IRS even treats these two in a different manner. Items that can last more than a year are subject to Section 179 and depreciation. You can use Section 179 to fully deduct the cost in the current tax year or depreciate the items over a number of years.

Final Words

If you need further information related to the personal property of your business and federal taxation, check IRS Publication 334 or talk to your accountant. Tangible personal property is a type of business cost that is deductible on federal taxes, so you must know the qualification.

Also, you need to learn how to file out your return. If your business is new and has not filed a return in previous years, you can simply hire an appraisal service. As for a closed business, you need to complete the “no personal property to report” section and note the date your business was closed.

One thing, the business personal property return should have the taxpayer’s declaration signed and completed. Remember to return to the assessor’s office before March 15th.

 

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