What expense category is Office Furniture?

When you invest in office furniture, such as desks, chairs, and cabinets, you are acquiring long-term assets for your business. A common and significant tax mistake is treating these purchases as office supplies and deducting the full cost in the year of purchase.

The IRS, however, views furniture as a capital expense. This means you cannot deduct the cost immediately. Instead, you must capitalize the expense and recover it over several years through a process called depreciation. This guide explains the correct tax treatment for office furniture, ensuring your business remains compliant and maximizes its tax benefits.

Office Furniture Expense Category

Office furniture is a tangible business asset with a useful life of more than one year. As such, IRS Publication 535 categorizes its cost as a capital expenditure. This means the cost is not a current-year expense but an investment in your business.

The cost of these assets is recovered through annual depreciation deductions. The annual depreciation expense is calculated on Form 4562, and the total is then carried to your main business tax return.

Important Considerations When Classifying Office Furniture

The key to handling these costs correctly is to understand the difference between a small, deductible expense and a larger, depreciable asset.

Capitalization vs. Current Deduction

Capitalize and Depreciate

The cost of office furniture, including any freight and installation charges, must be capitalized and depreciated over its useful life or recovery period.

De Minimis Safe Harbor Election

IRS Publication 535 provides a significant exception for small-cost items. You can elect to deduct the cost of tangible property in the current year if it falls below a certain threshold.

• If you have an applicable financial statement, you can deduct items costing up to $5,000 per invoice.
• If you do not have an applicable financial statement, you can deduct items costing up to $2,500 per invoice.
• This election allows you to immediately expense items, such as an individual chair or a small desk, that fall under the limit, rather than depreciating them.

Repair vs. Improvement

If you repair existing furniture, the cost is a currently deductible repair and maintenance expense. However, if you pay for a significant improvement or betterment—such as completely reupholstering all office chairs—that cost must be capitalized and depreciated over time.

Tax Implications and Depreciation Rules

The primary way to recover the cost of office furniture is through depreciation or the Section 179 deduction.

Depreciation Under MACRS

For tax purposes, office furniture is generally classified as 7-year property under the Modified Accelerated Cost Recovery System (MACRS), as detailed in IRS Publication 946. This means you will deduct the cost over a period of 8 calendar years (due to the half-year convention).

The Section 179 Deduction

As an alternative to depreciation, IRS Publication 334 explains that you may be able to elect to deduct the full cost of qualifying property, including office furniture, in the year it is placed in service. This is referred to as the Section 179 deduction. This valuable deduction is subject to annual dollar limits, but it allows for immediate cost recovery rather than waiting years.

How to Report the Deduction

Whether you use MACRS depreciation or the Section 179 deduction, the amount is calculated and reported on Form 4562. The total from this form is then carried to Line 13 of Schedule C.

What Records to Keep

You must keep detailed records to substantiate the cost and purchase of your office furniture. This includes:

• Invoices detailing each piece of furniture purchased.
• Proof of payment.
• Records showing when you placed the furniture in service in your business.

How Fyle Can Automate Tracking for Office Furniture Purchases

Fyle is the ideal system for the first and most critical step in depreciation: capturing and documenting the purchase of a capital asset, such as office furniture.

• Capture Purchase Invoices: Instantly capture invoices for new desks, chairs, or other furniture using the Fyle mobile app or by forwarding the vendor's email.
• Centralize Key Documents: Attach purchase orders, delivery receipts, and warranty documents directly to the expense record in Fyle.
• Categorize for Capitalization: Code the purchase as a Fixed Asset, which signals to your accountant that it must be capitalized and depreciated.
• Automate Your Accounting: Fyle syncs the capitalized cost to the correct fixed asset account in QuickBooks, Xero, NetSuite, or Sage Intacct, ready for the depreciation schedule to be set up.