Did You Make Any Large Purchases That Could Be Depreciated?

Did You Make Any Large Purchases That Could Be Depreciated?

Did You Make Any Large Purchases That Could Be Depreciated?

This can be especially helpful if your business expects to increase income in future years. IRS rules specify the depreciation rate and number of years for each type of property.

Examples of depreciable property include machinery, equipment, furniture, vehicles, buildings, and certain land improvements. To qualify for depreciation, the property must meet all of the following requirements:
  1. It is not inventory (property or merchandise held for sale to customers) or land.
  2. Your business must own and use the property.  Rented property, except for certain leasehold improvements, does not qualify for depreciation.
  3. The property must have a determinable useful life that is more than one year. 
The costs of intangible assets, such as goodwill, patents, business records, customer lists, trademarks, software, etc. are deducted using amortization, which is similar to depreciation.
 
Record the cost of depreciable items as fixed assets rather than current expenses. You may wish to create separate fixed asset accounts for each type of property to make it easier to track your assets. Generally, depreciation is used for property that costs at least $500; discuss this threshold with your tax accountant.

Tip: Depreciation is a crucial tax-planning tool as you consider current and future income. Your tax accountant should discuss various depreciation options with you and help you make decisions. Then he or she can give you the depreciation deductions for the year and a journal entry to record the expense in Sunrise.

Sunrise and Lendio do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice. You should consult a tax, legal, and accounting advisers before engaging in any transaction.

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