When you make big purchases for your business for things that will last for awhile (computers, cameras or lenses, audio equipment, musical instruments, etc.), tax rules allow us to either take the full expense in the year you bought the item, or we can spread the cost out over a few years. That second option—spreading it out—that’s what depreciation is.
During your appointment, we can help you think through which option might benefit you the most.
But here's some basic info in case you'd like to know more:
Almost everything we buy wears out or becomes obsolete over time. Because of this, the tax code allows the cost of certain kinds of business assets (or “Big Equipment” as we call it on our website) to be divided up and taken as a yearly deduction for a set number of years. For things like a computer, for instance, we can spread it out for five years.
To be eligible for depreciation, the asset (or big equipment) must be:
- owned, not leased or rented,
- used in a trade or business to produce income,
- have a useful life of more than 3 years
- something that wears out or loses its value.
- NOTE: There are some things, like land, that fall under different tax code provisions (we'll help you with that don't worry).
There are lots of ways to calculate depreciation, and certain assets have to use different rules than others. The important takeaway, is that we’re here to make sure you follow the right rules. Just remember, when you do make a big purchase, be sure to list it under “Big Equipment,” and when we have our tax appointment, we’ll talk through what makes the most sense for your situation.
Sign up for an account on our website to get started on your taxes today.