Office space and other equipment are essential to owning a business. The items you purchase for your business can help you increase profits and boost productivity for you and your staff.
The assets you purchase for your business can also be an important deduction on your taxes each year. Before you start deducting the items you have purchased, it is vital to understand which items depreciate and what that means for your taxes.
Here’s what you should know about depreciation and how it impacts the assets you purchase for your business.
Doesn’t everything depreciate?
Almost everything you buy decreases in value from the moment you purchase it until the day it breaks or becomes obsolete. However, some items are not considered “depreciable assets” like office supplies and other consumables that you will use up within a year.
When you think about depreciable assets, they typically fall into the categories property, plant and equipment (PPE). These are significant assets that will be useful for your business for years before reaching the end of their useful life.
How do I calculate the useful life of an asset?
The useful life includes how long it will be useable for your business or help you produce income. Keep in mind that “useful life” does not need to mean that it has completely worn out. An asset at the end of its useful life may simply become obsolete.
When you need to find the useful life of an asset, IRS publications can help you determine the asset’s predicted lifespan.
Calculating depreciation can include complex calculations, so it is critical to talk to a knowledgeable professional about how to handle deducting asset costs as they depreciate.