Depreciation - How it impacts your business and your individual tax returns
For many tax payers, depreciation may be just another deduction on their tax return, but to business owners and tax professionals, depreciation is an important tool to be used in developing their tax strategy.
Depreciation is an accounting method used to take an annual deduction that allows a taxpayer to recover the cost of an asset purchased, over an IRS-defined number of years. The two most common methods of depreciation for tax purposes are accelerated depreciation and straight line depreciation. Accelerated depreciation allows a taxpayer to deduct more of the expense in the early years in the life of the asset, while straight line depreciation recovers the cost of the asset proportionately over the life of the asset.
There are several other types of depreciation as well that can be used to accelerate the depreciation of the asset even more quickly; often allowing for a 100% deduction in the year of purchase. That’s right, when an asset is purchased (even if financed!), current tax laws often allow a taxpayer to deduct the entire cost in the first year. This can be a valuable tax planning strategy for all taxpayers, and especially those who need to purchase new equipment but want to time it to be the most advantageous from a business and tax perspective.
At Brewer, Eyeington, Patout & Co., LLP, we encourage our clients to call or meet with us to discuss how depreciation can impact their business and tax return. A great time to have these conversations are in the fourth quarter of the year, when we can jointly review the client’s year and where the client hopes to be by year-end. We can also have these discussions quarterly to work with and advise our clients as they are making decisions throughout the year.
Call us today to schedule an appointment with one of our trusted business advisors and we can help you navigate the decisions that make the most sense for your business AND your return.
Emilee McKnight, CPA
Brewer, Eyeington, Patout & Co., LLP