What is a fixed asset?

In plain English

Fixed assets are recorded at cost and depreciated. Keep a register of each with the invoice and date placed in service.

Dispose of them in the books when you sell or scrap them.

Why it matters

Fixed assets like vehicles, machines and computers often represent a large share of what a small business owns. Recording them as assets, rather than expensing them, keeps your balance sheet meaningful and helps you plan when equipment will need to be replaced.

These purchases also tend to carry tax choices, such as how quickly to depreciate them. Your preparer needs the cost, date placed in service and business use for each one. Missing details can lead to lost deductions or questions down the road.

Worked example

A $4,200 printer sold for $1,100 is removed along with its accumulated depreciation, and any gain or loss is recorded.

How to handle it

1. Record each qualifying purchase to a fixed asset account, using your capitalization policy as a guide.
2. Include delivery and installation costs that are part of getting the asset ready for use.
3. Add the item to a fixed asset register with description, serial number, cost and in service date.
4. Post depreciation regularly according to the method you and your accountant chose.
5. When an item is sold or scrapped, remove its cost and accumulated depreciation and record any gain or loss.

Common mistakes

• Recording the loan used to buy equipment as income, which inflates profit instead of creating a liability.
• Leaving sold vehicles on the books, which overstates assets and keeps depreciation running.
• Recording a trade in as a simple cash purchase, which ignores the old asset that left the business.
• Mixing repairs with improvements, so routine maintenance is capitalized or major upgrades are expensed.

Not the same as: Current assets

A fixed asset is used for several years to run the business. Current assets are expected to be turned into cash or used up within about a year. See Current assets.

Go deeper

• Fixed Asset Register: How to Build and Maintain One: Create a simple register of equipment and property with costs, dates, locations and disposal records that stays useful for taxes and insurance.
• Depreciation Basics for Small Business Owners: What depreciation is, how straight-line works, the difference between book and tax depreciation, and how to record it without overcomplicating.

Related terms

• Form 1099-NEC: An IRS information return reporting payments to non-employee contractors above a threshold.
• Form W-9: The form a contractor gives you with their name, tax classification and taxpayer ID before you pay them.
• Expense: A cost of running the business, subtracted from revenue to find profit.

Common questions

General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.