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All You Need to Know About Depreciation

How Depreciation Affects Business Taxes


Many business people avoid using depreciation because they think it is difficult to understand. But if you use depreciation correctly, it can save you much money in business taxes. Learn about depreciation, how to calculate depreciation, and accelerated depreciation, including Bonus depreciation and Section 179 depreciation deductions.

1. What is Depreciation?

Depreciation is a non-cash deduction for the expense of owning a business asset. There are different ways to calculate depreciation, and depreciation can in some instances be accelerated (that is, more depreciation can be taken in earlier years of ownership.

2. What Information is Needed to Determine Depreciation?

Keeping good records on assets is the starting point for taking advantage of depreciation. Before you can depreciate an asset, you must have information on its cost and several other pieces of information. Some of this information is provided by the IRS, while in other cases you must make some decisions.

3. How Do I Calculate Depreciation? What are the Common Depreciation Methods?

Learn bout the methods used to calculate depreciation, including straight line, sum of the years' digits, and double declining balance. (They are not as difficult as their names imply.)

4. How Is Depreciation Shown on a Business Financial Statements?

This article explains how depreciation is included in the balance sheet and income statement of a company.

5. What is MACRS Depreciation?

MACRS (Modified Accelerated Cost Recovery System) is the most commonly used depreciation system. Learn how MACRS works for determining depreciation.

6. What is Accelerated Depreciation?

In some cases, depreciation can be accelerated to provide tax incentives to businesses for purchasing capital assets for their businesses. Kinds of accelerated depreciation are discussed in this section.

7. What is a Section 179 Expense Deduction?

One type of accelerated depreciation is provided under Section 179 of the Internal Revenue Code. Learn how Section 179 depreciation can save you money by increasing expenses and deductions at tax time.

8. What is "Bonus" Depreciation?

Bonus depreciation is a method of accelerated depreciation which allows a business to make an additional deduction of 50% of the cost of qualifying property in the year in which it is put into service. Read about how you might be eligible for bonus depreciation for some assets in some years.

9. How Do U.S. States Treat Section 179 Depreciation?

Some states limit the amount of Section 179 depreciation or disallow it. Check to see if your state is one of these.

10. What is the Difference Between Depreciating and Expensing?

An asset is expensed (considered as an expense of the business) if it has a useful life of less than one year. An asset is depreciated if it has a useful life of one year or more. Learn more about expensing and depreciating assets in this article.

11. What is the Difference Between Depreciation and Amortization?

Depreciation and amortization work essentially the same way, to spread out the cost of a business asset over its useful life. Amortization is used for intangible assets, like intellectual property, goodwill, and licenses.

12. What is "Listed Property" and How Is It Depreciated?

Listed property is a class of assets that can be used for either business or personal purposes, like cell phones, computers, and autos. To be able to depreciate listed property, certain requirements must be met. Learn more about depreciating listed property.

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