Why Big Purchases Deserve Special Attention in Your Books
As a small business owner, investing in big-ticket equipment—like a new service truck, backhoe, or HVAC unit—is a major milestone. It can also be a major headache if not tracked properly.
When done right, bookkeeping for big purchases helps you:
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Avoid IRS penalties
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Accurately claim deductions
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Monitor cash flow
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Maintain clean and audit-ready books
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Understand the real return on investment (ROI)
Whether you’re financing through a lender or leasing to own, you need a bookkeeping strategy that matches the complexity of the purchase.
This guide will show you how to properly track equipment financing, set up your chart of accounts, and optimize your deductions—without getting buried in paperwork.
Section 1: What Counts as a “Big Purchase”?
In bookkeeping terms, a “big purchase” is typically any capital asset—something you buy to use in your business for more than a year and that costs more than a minimum threshold (often $2,500, per IRS safe harbor rules).
Common Capital Equipment in Home Service Businesses
| Equipment Type | Average Cost | Useful Life |
|---|---|---|
| Service trucks/vans | $25,000–$60,000 | 5–7 years |
| Excavators, skid steers | $30,000–$80,000 | 5–10 years |
| Commercial HVAC units | $10,000–$40,000 | 7–15 years |
| Power tools or diagnostic tools | $2,500–$10,000 | 3–7 years |
| Office computers/software | $1,500–$5,000 | 3–5 years |
Tip: If you’re unsure whether something is a capital purchase, ask: Will this help me make money for more than one year? If yes, it should go on your balance sheet.
Section 2: How to Record Big Purchases in Your Books
Step 1: Create an Asset Account in Your Chart of Accounts
Use bookkeeping software like QuickBooks Online to create an asset account under “Fixed Assets” for the specific equipment category (e.g., “Vehicles,” “Tools & Equipment”).
Step 2: Record the Purchase
If paid in full, you’ll debit the asset account and credit the cash or bank account.
Example:
| Account | Debit | Credit |
|---|---|---|
| Equipment | $20,000 | |
| Cash/Bank | $20,000 |
If financed, it’s recorded differently:
| Account | Debit | Credit |
|---|---|---|
| Equipment | $20,000 | |
| Loan Payable | $20,000 |
Step 3: Record Loan Payments
Each loan payment includes principal and interest. You must separate them each time:
| Account | Debit | Credit |
|---|---|---|
| Loan Payable | $500 (Principal) | |
| Interest Expense | $150 | |
| Bank | $650 |
QuickBooks Tip: Set up recurring transactions and split them between principal and interest to save time.
Section 3: Why Depreciation Matters—and How to Track It
The IRS doesn’t allow you to write off big purchases in full the year you buy them (unless using Section 179 or bonus depreciation). Instead, you depreciate the cost over time.
Types of Depreciation
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Straight-Line: Equal expense each year
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MACRS (IRS Standard): Accelerated depreciation schedule based on asset type
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Section 179 Deduction: Write off up to $1,220,000 (2024 limit) in the year of purchase
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Bonus Depreciation: 60% immediate deduction for qualifying property (2025)
IRS Source: Publication 946 – How To Depreciate Property
Bookkeeping for Depreciation
Most small businesses let their tax pro handle depreciation schedules, but your bookkeeping software should track accumulated depreciation.
Example journal entry each year:
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | $2,000 | |
| Accumulated Depreciation | $2,000 |
This shows that your equipment’s value is dropping and your books reflect its real worth.
Section 4: Common Bookkeeping Mistakes with Big Purchases
Avoid these errors that can cost you time, money, and peace of mind:
❌ Mistake 1: Expensing a Big Purchase Instead of Capitalizing It
Putting a $15,000 tool expense in your P&L instead of your balance sheet will overstate expenses and reduce your net income improperly.
❌ Mistake 2: Forgetting to Track Loan Balances
Many businesses just enter monthly payments and forget to track how much they owe. This leads to inaccurate liability reporting.
❌ Mistake 3: Ignoring Depreciation
Without tracking depreciation, your books won’t align with your tax filings. This can trigger red flags in audits.
❌ Mistake 4: Not Separating Interest from Principal
Combining principal and interest in one “loan payment” expense line is a mistake. Interest is an expense; principal reduces liability.
Section 5: Tax Considerations and Deductions for Equipment Financing
Big purchases come with big tax implications. Here’s what you need to know:
Section 179: Instant Gratification
If your equipment qualifies and your business is profitable, you may be able to deduct the entire purchase this year using Section 179.
In 2025, the Section 179 deduction limit is $1.22 million, with a total equipment purchase cap of $3.05 million. (IRS)
Bonus Depreciation: For the Rest
Bonus depreciation lets you deduct 60% of the cost in 2025 (was 100% in prior years), even if you use financing.
Interest Deductions
All interest payments on business loans are deductible as a business expense.
Important Note:
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Only the business-use portion of an asset can be deducted.
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You can’t deduct loan payments—only the interest and depreciation.
Section 6: Real Example—How a Plumbing Business Saved $8,000 on Taxes
A Denver-based plumbing business bought a $38,000 service van using a 60-month loan. They:
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Created a new vehicle asset account in QuickBooks
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Logged the full purchase amount as a fixed asset
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Set up a loan payable account for the financed amount
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Used Section 179 to deduct $38,000 in the first year
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Tracked interest separately for monthly write-offs
The result? A tax savings of $8,000, plus clean books to show the bank during a refinancing round.
Section 7: How to Track Equipment Leases
Leases are different from loans. Some are operating leases (short-term rentals), others are capital/finance leases (you intend to own the equipment).
Operating Lease Example:
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Expense payments as “Rent” or “Lease Expense”
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Don’t record asset or liability
Capital Lease Example:
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Record the asset and liability at the present value
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Depreciate the asset
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Separate interest from lease payments
Ask your accountant whether your lease qualifies as a capital lease based on IRS guidelines.
Section 8: Tools and Templates to Help You Get It Right
Software Recommendations
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QuickBooks Online Advanced – Best for tracking assets, loans, and depreciation
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Out of the Box Technology – Setup, bookkeeping cleanup, and monthly management
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Excel Depreciation Schedule – If you’re DIY-ing, track depreciation manually
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TSheets – Time tracking that helps calculate labor on asset-driven jobs
FAQs: Bookkeeping for Big Purchases
What’s the best way to track a financed equipment purchase?
Use your bookkeeping software to create an asset account for the equipment and a liability account for the loan. Record the purchase as an increase in assets and debt. Then, record monthly payments by separating interest and principal.
Can I deduct the full cost of a financed purchase?
Yes—under Section 179 or bonus depreciation, you may be able to deduct the full cost even if you haven’t paid in full. Always confirm with your CPA.
How do I know if something should be capitalized?
Generally, if it costs more than $2,500 and is used for more than one year, it should be treated as a capital asset—not an expense.
What happens if I expense a big item instead of capitalizing it?
You could misstate your profit, face IRS penalties during an audit, and hurt your chances of getting financing if your books don’t show accurate assets.
Should I track depreciation monthly or yearly?
Most businesses track depreciation annually for taxes, but monthly entries in your books will give you more accurate financial statements.
Final Thoughts: Good Bookkeeping Turns Big Expenses Into Strategic Investments
Buying major equipment for your business is a bold move—and it should be matched with bold financial clarity. When you approach bookkeeping for big purchases the right way, you’ll unlock long-term tax advantages, financial insights, and peace of mind.
At Out of the Box Technology, we help small business owners in home services track and manage equipment purchases, set up QuickBooks the right way, and clean up messy books—so you can stay focused on growing your business, not sorting out receipts.
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