Posted by Debi G Hill, CPA

What are the Depreciation Schedule for Business Assets?

What are the Depreciation Schedule for Business Assets?

Depreciation doesn’t sound appealing to most of us. However, all the tax savings it will give you might be of great benefit for you!

You should familiarize yourself on the basics of depreciation and make sure you’re leveraging depreciation to the max even if your accounting is taking care of all the things for you.

What is depreciation?

If you buy something expensive for your business and you are in the process of deducting the cost of it, that’s what depreciation is. But you write off parts of it over time instead of doing it all in one tax year. You can plan how much money is written off each year when you depreciate assets and through this, you can control over your finances. 

The product’s useful life (e.g. a laptop os useful for about five years) determines the number of years over which you depreciate something. Different classes are where different assets are sorted into, and each class has its own unique useful life.

What is an asset?

Anything with a dollar value is considered as an asset. Assets are also referred to as “property” by the IRS.  It can be either intangible or tangible.

Assets that can be touched are considered as a tangible asset. A computer, office building or delivery truck belongs to this group. 

Assets that can be bought or sold but can’t be touched are considered as an intangible asset. Examples included intellectual properties such as copyright, patent, and more. 

It is possible to depreciate both tangible and intangible assets. The act of depreciation in the case of intangible assets is called amortization. 

In a balance sheet, you can list down assets. And, on the income statement is where assets’ depreciated amount, after it’s depreciated, becomes an expense. 

The kind of assets you can depreciate 

For you to have a guideline on the assets accepted to be depreciated, the IRS sets guidelines and needs to meet the following criteria:

  • You must own it
  • You use it to produce income and mainly for your business
  • The asset’s useful life can be determined by you
  • You expect the assets to last more than a year

Below are what assets some small business depreciate:

  • Real Estate
  • Vehicle
  • Office Furniture
  • Equipment
  • Computers

Depreciation Schedule

A table that shows you how much a particular asset will be depreciated over the years can be found on the depreciation schedule. 

Types of Depreciation

Talking about the different types of depreciation, there is more than one. How much you write off each year will be determined by which will be the one you will choose. You should be familiar with the four types of depreciation:

  • Straight-line depreciation
  • Double declining depreciation
  • Sum-of-the-year’s-digit (SYD) depreciation
  • Units of production depreciation

You may have noticed how each type of works is not associated with the names it has. Don’t worry because once you understand the method, those names will make sense.  

An asset’s value is split evenly over multiple years is what a straight-line depreciation is. This is considered the simplest and the most straightforward to depreciate an asset. This is best for small businesses that may not have an accountant to handle their taxes for them, and this one has the simplest accounting system. 

A double-declining depreciation is allowing you to write off more of its value after you buy it and less as time goes on and considered a slightly more complicated way to depreciate an asset. If your business wants to recover the assets value upfront, this kind of depreciation suits you. This will you extra cash especially if you just opened your business with a lot of expenses in the first year. 

A type of accelerated depreciation similar to double-declining is the method of sum-of-year’s-digit depreciation. SYD takes away from the remaining life of the asset each year instead of decreasing the book value. If you want to recover more of the asset’s value but with slightly more even distribution than the double-declining method, this one’s for you. 

Depreciating the value of equipment based on how much work it does is the simplest way and it is called unit of production depreciation method. Something the equipment creates such as- pizza- is what the “unit of production” refers to, and also the hours it is in service.

Debi G Hill, CPA
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