![]() ![]() Our capital expenses would drop like a rock! They did, then again, we never had to pay $30 mil in monthly operational expenses for the right to access our own data either. Capital expenses (CapEx) refer specifically to long-term assets purchased as an investment in your business, the benefits of which will last longer than one year. It didn't, in fact it covered up how much of a rip-off some cloud products were, but for a time this was the major selling point. Operating expenses (OpEx) are expenses needed to operate your business on an ongoing basis and appear on the profit and loss statement. This helped move everything to the 'cloud', the story was it made the expenses more predictable. We did the inverse in IT a few years ago, instead of 'capitalizing' everything we were told to 'operationalize' everything. In this case, you pre-paid it on purchase, so you have successfully 'capitalized' the expense. Operating expenditure is used to cover the costs of day-to-day operations. Capital expenditure is used to purchase long-term assets that will generate income. That oil change is normally an operational expense, you pay it when it is time, after so much use. The main difference between capital expenditure and operating expenditure is the purpose of the expense. So back to our planes, say for a little bit extra Boeing will throw in oil changes (yes, I know planes don't have 'oil changes' in the traditional automotive sense) to sweeten the deal. If you 'capitalize' something, that is to say you have wrapped some operating expenses in with the capital purchase. The general rule is that you cannot deduct outlays or expenses that arent related to earning business income. However, you can deduct travel expenses you incur in the course of carrying on a business while away from home. ![]() The maintenance costs associated with those planes are 'operational expenses', or expenses that are incurred by using products. Types of operating expenses In most cases you cannot deduct personal and living expenses. Its counterpart, a capital expenditure (capex), is the cost of developing. You buy them once and are done with that. An operating expense is an ongoing cost for running a product, business, or system. If you go buy 40 Boeing 787s, that is a capital purchase. A 'capital' expense is normally a one time fee for the aquisition of some asset. ![]()
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