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Tax Planning Steps at Year End - Tax Deductions and Tax Credits

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Writing Off and Writing Down Obsolete Equipment and Inventory Can Save on Taxes

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 Go through this list and mark equipment that is: (1) obsolete (out of date), (2) worthless, damaged beyond repair, or (3) damaged but still usable.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in a back room because you bought a new computer, you can expense the full $2,000 purchase price because the computer is obsolete.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.

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