Learn something new every day
More Info... by email
Original cost is the cost associated with acquiring an asset and putting it into service at the time of acquisition. This term is used for accounting purposes, and is declared on tax filings as a deductible business expense when assets are acquired for business purposes. Original cost is not equivalent to fair market value, replacement value, cash value, or other types of valuations used for different accounting purposes.
For some assets, the original cost is simply the cost of the asset at the time of purchase. In other instances, there are costs associated with installing the new asset. These can include taxes and fees, purchases of accessories needed for the asset to work, installation fees, commissions, and other associated costs. To be included in original cost, all of these costs must be documented to show that they were necessary and associated with the acquisition and installation of the new asset.
When assets are purchased for a business, they can be deducted or written off on taxes. Tax authorities recognize that operating expenses associated with a business include the costs of replacing, repairing, and maintaining assets used to make the business run. Documentation must be present for all of these assets and the business must be able to show that it is using them for business purposes. Assets acquired for personal use by someone who works for or owns a business are not tax deductible.
Over time, assets depreciate. The original cost is quickly greater than the actual value of the asset. Insurance companies that provide coverage for replacement value insist on valuing assets in terms of what it would cost to replace them, rather than the original cost. This ensures that in the event that an asset is lost, stolen, or damaged, enough money is available to replace it without overpaying the claim. People who specialize in valuing assets can be called upon to determine the value of an asset for insurance purposes.
People who are not sure about what to include in the original cost of an asset can ask a tax accountant for guidance. Tax documentation with too many claims on it can arouse suspicion among tax authorities and it is important to make sure that information is accurate and complete to reduce the risks of being audited. Audits can result in an adjustment to tax liability and in some cases, tax authorities may determine that fraud has been committed, exposing people to the risks of legal penalties.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!