What is Depreciation: Did You Make Any Large Purchases That Could Be Depreciated?

What is Depreciation: Did You Make Any Large Purchases That Could Be Depreciated?

Overview

Deprecation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.

When Does Depreciation Begin and End?

You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.

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 deprecation. The property must meet all of the following requirements: 

  • It must be property you own

  • It must be used in your business or income -producing activity

  • It must have a determinable useful life

  • It must be expected to last more than 1 year

The costs of intangible assets, such as goodwill, patents, business records, customer lists, trademarks, software, etc. are deductible 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.  For depreciation thresholds, please discuss with your 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 adviser before engaging in any transaction.



    • Related Articles

    • How Tax Assist estimates your taxes

      Where do you find your quarterly tax payment amounts? Every year, when you file your tax returns, the IRS sends you quarterly tax estimates on half-page payment vouchers. The IRS calculates the minimum amount of what you should be paying each quarter ...
    • How to: Mobile Expense Tracking

      The Sunrise app is a convenient way to track your business expenses while you’re on the move. Especially handy is being able to snap a picture of a receipt and attach it as proof when creating an expense. Here’s how to use the mobile expense tracking ...
    • Make Sure You Recorded Your IRS Tax Payments Correctly and NOT on the P&L

      Make Sure You Recorded Your IRS Tax Payments Correctly and NOT on the P&L You may think that any money you send to the IRS is a business expense, but in general that’s not true! Payments to the IRS could be any of the following: Payroll taxes. ...
    • Did You Receive Any Tax Credits

      Did You Receive Any Tax Credits? A tax credit is a dollar-for-dollar reduction in the amount of tax that a business or individual owes. This is different from a tax deduction, which reduces taxable income of the business. Calculation of tax credits ...
    • Setting up VAT reporting in your Balance Sheet

      If you need to report VAT deductions on purchases and sales, follow these setup instructions Written by Success-Team Updated over a week ago To separate taxes you've collected or paid from your balance sheet and profit & loss statement. First, head ...