Keeping on top of the depreciation to take for your business equipment, business vehicles, and even property can be time consuming and frustrating. Using depreciation schedules it is much easier. Depreciation is the reduction that an asset has over the life of it.
The overall amount is based on the original purchase price and the number of years the asset is classified as depreciating over. If you purchased used items then the original purchase price and date placed into service are based on how much you paid and the date you purchased it.
There are several different types of depreciation schedules to use. You will almost always use the one that is the same as how you operate your business. Most businesses use a straight line accounting method and that is also what they will need to use for depreciation. The straight line method is the easiest of all the different depreciation schedules.
This method involves depreciating the value of the item evenly over a set period of time. This can have significant tax benefits for business owners because they will have a large deduction to use for their income taxes for that time period which can be from 3 to 10 years depending on the item.
MACRS is a cost recovery system and a more complicated depreciation schedule. It always operates on a 5 year recovery plan regardless of the type of item. For bigger ticket items this allows the company to recover the loss in less time. However they won’t be able to claim that depreciation for more than 5 years. This is a good choice for businesses who continually upgrade their equipment in 5 years or less.
Another type of accelerated depreciation schedule is the double declining balance method. It accumulates at twice the rate of depreciation under the straight line method. This helps to recoup the value of the item in ½ the time. Businesses that have a great number of vehicles or equipment often benefit from this method.
The type of depreciation schedule that is right for your business depends on the type of business, the accounting method used, and your income tax rates. A qualified tax preparer can help you identify the right depreciation schedule to benefit you the most. |
