What's the Difference Between a Business Expense and a Capital Expenditure?

The distinction between a business expense and a capital expenditure determines whether you can deduct a cost immediately or must spread it out over several years. A business expense is an ordinary and necessary cost of running your business that you deduct in full in the year you pay it — things like office supplies, software subscriptions, utilities, and advertising. A capital expenditure is an asset with a useful life of more than one year, such as equipment, a vehicle, or a building, which you typically depreciate over the asset's useful life as defined by the IRS. The difference matters because immediately deducting a large purchase reduces your tax bill right away, while depreciating it spreads the deduction across multiple years. Tools like Section 179 and bonus depreciation allow businesses to immediately expense many capital items that would otherwise require multi-year depreciation.