Client Alert Summer 98 - Library Costs

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Client Alert - Summer 1998

Library Costs
by: Anne D'Amico, CPA

Various companies often invest in additions to their libraries. For example, law firms purchase bound volumes, reporters, law diaries, supplements and updates to services such as Westlaw. The findings of recent audits have concluded that investments in bound volumes of a more permanent basis were disallowed as a current business expense. These costs were found to be capital in nature and allowed to be recovered through depreciation deductions over a five year period. One factor to consider is whether the bound volumes are edited on a yearly basis. Another factor is the estimated useful life of the volumes related to the taxpayer's trade or business.

To summarize, if the addition is expected to have a useful life greater than one year, it must be capitalized and depreciated. If the addition is expected to have a useful life of one year or less, it may be expensed.

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