Many freelancers need help distinguishing whether their expenses can be considered investment goods.
The problem is that if you make a mistake with this, the Treasury can penalize you for trying to pay less taxes than you really should.
You always know if an expense is an investment good, thus avoiding future failures that could cost you money.
But if you have decided to do the accounting on your own, I will tell you everything you need to know about investment goods in this article.
What is an investment good?
An investment good is an expense that you made on a good or service to use daily in the performance of your business, which is older than one year.
What is not an investment good
Even if they exceed this amount of money, consumable goods are not considered investment goods.
An example of a consumable good could be silk in a tailor shop. The reason is simple: silk is not an investment good because to be considered an investment good, it cannot be consumed before 12 months.
For the rest and about their taxation, they are like deductible expenses, although there are exceptions.
Even if they meet the requirements, they are not investment goods either:
- Accessories and spare parts to repair other investment goods
- The cost of labour to repair other capital goods
- Containers and packaging
- The uniforms of the workers of your company
Last but not least, the requirements to take into account to consider whether a good is an investment or not is its amount of it.
- The minimum amount required to consider an investment suitable for VAT purposes is € 3005.06
- The amount necessary to consider an investment suitable for personal income tax purposes must be greater than € 300
Types of investment goods
The key to considering the types of investment goods is the product and the use you will give it.
The Treasury defines and classifies investment assets as assets intended to serve as work or exploitation tools for more than one year as movable or immovable property.
To further detail the concept of what an investment good is, you have to know the types that exist:
- Tangible property (that can be transported)
- Semovientes (livestock)
Examples of Investment Goods
Example #1 of investment good
For example, imagine you have a workshop. If you buy a machine to make part of your products and intend to use it for over 12 months, the machine is an investment good.
Example #2 of investment good
Another example is that you are a carrier and need a car to be able to do your job. In this case, the car would also be considered an investment good.
And if you are a commercial agent and you need to buy a vehicle to visit your clients, then for you, the vehicle will also be an investment asset.
Example #3 of investment good
Let’s say you are an ophthalmologist and need an ocular laser to operate on cataracts. Logically, this laser will cost you a lot, but you will use it in your activity for a long time. For you, the laser will be an investment good.
Amortization of investment assets
When you buy an investment good, what you pay is not considered an expense but an investment.
This is because the value of that asset continues to be an asset for your business. After all, it helps you perform a function to develop your economic activity.
In addition, being good that you buy as an investment is an expense that you can and must amortize. In other words, you only deduct it some at a time but over a period of time that is always longer than a year.
To calculate the amortization of investment assets, the Treasury has calculation parameters based on the percentage and the number of years that the asset is used in the business.
First, you must create the amortization sheet. This document is a report with the necessary basic information from the previous year and about the assets you want to depreciate.
It is used for:
- Identify what type of investment good it is
- Know when you bought it
- Know what amount without VAT you have paid
- Know what percentage of amortization (linear coefficient) corresponds to this investment good
- Calculate the amount you can amortize each year with the previous data following the regulatory tables of the Treasury amortization.