What expense category is hardware?

When purchasing hardware for your business, it's important to classify these expenses correctly. Knowing which expense category hardware expenses fall into helps maintain accurate financial records and can affect your tax reporting.

Classifying hardware expenses

Hardware expenses generally fall into two main categories:

• Capital expenditures (CapEx): These are significant investments expected to provide value over several years. Examples include servers and high-end computers. They are depreciated over their useful life
• Operating expenses (OpEx): These include costs associated with day-to-day operations. Examples of these expenses are the costs of essential hardware used regularly, like office printers. They are fully deductible in the year they're purchased.

Examples of hardware expenses

Deciding whether a hardware purchase is CapEx or OpEx depends on factors like cost, expected lifespan, and how it's used in your business. Here are some common hardware expenses businesses might have:

• Capital expenditures:
  • Servers for network infrastructure
  • Specialized equipment for manufacturing
  • High-end workstations for graphic design
• Operating expenses:
  • Office printers and scanners
  • Standard desktop monitors
  • Everyday laptops for employee use

For example, purchasing a new server for $10,000 would be a capital expenditure, whereas buying a $300 printer for daily office tasks would be considered an operating expense.

Tax implications of hardware expenses

How you classify hardware expenses can impact your taxes:

• Capital expenditures: These expenses are depreciated over several years, and the deduction is spread out over the asset's useful life.
• Operating expenses: These expenses are fully deductible in the year incurred; they reduce taxable income immediately.

For smaller purchases under $2,500, the IRS allows you to deduct them as "Other Expenses" on Schedule C. Consistently categorizing your hardware expenses helps simplify accounting and ensures compliance.

Let Ramp automate your expense process

Managing hardware expenses doesn't have to be a hassle. Ramp automates the categorization, tracking, and management of all your business expenses, including hardware. With Ramp, you can streamline your expense process, stay on top of your finances, and focus on what really matters—growing your business.