J.K. Lasser's Small Business Taxes 2014: Your Complete Guide to a Better Bottom Line

First-Year Expensing, Depreciation, Amortization, and Depletion

First-Year Expensing

Other Expensing Opportunities

General Rules for Depreciation

Modified Accelerated Cost Recovery System

Depreciation Methods

Bonus Depreciation

Limitations on Listed Property

Rebuilding Incentives for Certain Disaster Victims

Putting Personal Property to Business Use

Amortization

Depletion

First-year expensing, which is also called the Section 179 deduction after the section in the Tax Code that creates it, is a write-off allowed for the purchase of equipment used in your business. This deduction takes the place of depreciation—the amount expensed is not depreciated. For example, if you buy a used computer for your business for $2,500, you can opt to deduct its cost in full in the year you place the computer into service. If you don't make this election, you must write off the cost over a number of years fixed by law.

Depreciation is an allowance for a portion of the cost of equipment or other property owned by you and used in your business. Depreciation is claimed over the life of the property, although it may be accelerated, with a greater amount claimed in the early years of ownership. The thinking behind depreciation is that equipment wears out. In theory, if you were to put into a separate fund the amount you claim each year as a depreciation allowance, when your equipment reaches the end ...