In This Chapter
Understanding depreciation: What you do and why you do it
Exploring depreciation methods
Looking at depreciation's tax impact
All businesses have fixed assets — equipment, furnishings, and vehicles that last more than a year. Although they may last longer than other assets, even fixed assets eventually wear out or become obsolete and need replacing.
Of course, fixed assets, like other assets, are an expense, but because fixed assets last longer, you have options in how you account for those expenses. For example, you may choose to deduct the entire cost of a fixed asset the year you purchase it. Another option is to use a method called depreciation to write off the cost of the asset over several years or perhaps even over the life of that asset. Each option has its benefits and drawbacks.
This chapter introduces you to the various ways you can depreciate your assets and explains how to choose a depreciation method, calculate depreciation, and reap its tax benefits. Changes in the tax law may also impact your decisions about depreciation.
Accountants use depreciation as a way to allocate the costs of a fixed ...