Timing of deductions

Like the timing of income, the timing of deductions - when to claim them - is determined by your tax year and method of accounting. Your form of business organization affects your choice of tax year and your accounting method.

But when expenses are deductible, there may be limits on the timing of those deductions. Some expenses must be capitalized or amortized, or you must choose between current deductibility and capitalization.

Capitalization generally means that expenses can be written off as amortized expenses or depreciated over a period of time. Certain capitalized costs may not be deductible at all, but are treated as an additional cost of an asset.

For small businesses, there is a provision under IRS Section 179, which allows for the direct expensing of capital purchases, like for equipment, rather than depreciating over time.