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To regard the cost of an improvement or other purchase as a capital asset for purposes of determining Income Tax liability. To calculate the net worth upon which an investment is based. To issue company stocks or bonds to finance an investment.

The owner of a business may capitalize the expense of renovating a factory to maximize his or her after-tax profits, since such expenses may be used to decrease the pretax profits, thereby reducing the amount of profits subject to taxation.

An individual may compute the net worth of shares of stock, in order to treat them as capital assets for income tax purposes. Such treatment often results in more favorable rates of taxation on the profits made when assets are sold because they are considered capital gains.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
References in periodicals archive ?
One outstanding issue for taxpayers is whether a buyer should deduct or capitalize amounts it later pays on a liability in excess of the original amount capitalized.
Before trial, the IRS had allowed a deduction for accumulated interest and loss on disposal of some acquisition assets and ITW agreed to capitalize its original $1 million damage estimate.
Company X recognizes the $500,000 cost of the remedial investigation/feasibility study in the current period and capitalizes the costs of the water-filtration system.
Knowing this, we expect our skill position players to recognize and capitalize on a numbers advantage as soon as it appears.
The IRS requires businesses to capitalize reengineering costs (see TAM 9544001 on reengineering in a conversion to just-in-time manufacturing).