Assets: Depreciation and Disposition

Buying and selling assets are usually a large part of the foundation of a business startup costs can add up quickly, so knowing what deductions are available is essential. Depreciation plays a vital role in this process.

Depreciation- process of deducting the cost of a business assets over time, commonly called it's helpful life, instead of taking a deduction the year it was purchased.

Straight line depreciation.

The simplest and most commonly used method of depreciation. This method results in businesses charging the same depreciation each year over the established period.

Formula for straight line depreciation

Purchase price ÷ the number of useful years= depreciation amount each year during the number of useful years period.

Note: if equipment, vehicles and software are used for personal reasons for any percentage up to 50% of the time, the taxpayer must determine that dollar amount eligible for section 179:

Formula-

cost of item×percent of business use= dollar amount eligible for section 179.

Eligibility - section 179 deduction can be taken if the asset is purchased or financed and the total amount of the purchase price is eligible for the deduction.

Limitations- section 179 expense deduction can only be used for: tangible property ( car, office equipment, furniture, business machinery, computers / most software if purchased from unrelated party.

Equipment / vehicles and software purchased under section 179 must be used more than 50% of the time for the business purpose to qualify for the deduction.

When does this apply?