Obsolete, damaged, or worthless equipment can be taken off your accounting records to increase your expenses and lower your tax liability. Here is how this process works:
- You should have a list of all equipment in your company, including office equipment and any equipment you use to make products. Go through this list and mark equipment that is: (1) obsolete (out of date), (2) worthless, damaged beyond repair, or (3) damaged but still usable.
- For items that are obsolete or worthless, list the full value of the equipment for write-off
- For items that are damaged but still usable, list the reduction in value for write-down. For example, if you have a computer that you purchased for $2,000 and it's sitting in a back room because you bought a new computer, you can expense the full $2,000 purchase price because the computer is obsolete. If a piece of equipment cost $1,000 new and you feel its value is $300 less because of damage, you can list $300 as an expense, reducing the book value to $700.
- The total of all these write-offs and write-downs can be taken as an expense on your tax return. The assets are then reduced in value.