Accelerated Depreciation

Accelerated depreciation is customarily found with tax depreciation, it allows the small business owner the opportunity to take additional (accelerated) depreciation expense and reduce their respective tax obligation for that tax year.

Bookkeeping – Book and Tax Depreciation (Lesson 52)

Book and Tax Depreciation

One of the differences between book income and taxable income is depreciation.  In general Section 168 of the Internal Revenue Code allows businesses to accelerate their depreciation for tax purposes.  This increases the expenses of the business thus reducing profit for tax purposes.

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Bookkeeping – Introduction to Depreciation (Lesson 50)

Depreciation

Depreciation is the process of allocating the initial capital outlay for fixed asset purchases over time to the income statement.  The basic principle is that any fixed asset has a predetermined lifetime based on time, usage or fair market value.  Your job as the bookkeeper is to assign depreciation expense to the respective asset and record the entry as a function of daily operations.

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Various Sets of Accounting Books

Accounting Books

Accounting’s primary purpose is to measure economic activity.  There are several different methods to determine the economic value generated in your business each year.  In accounting this is referred to as sets of books.  There are four basic sets of accounting books.  Each has a different purpose and end goal.

Accelerated Depreciation – An Explanation

Accelerated Depreciation

When it comes to depreciation, no two businesses are alike. Unlike traditional straight line depreciation where the asset value is costed out to depreciation expense in equal increments over a given life expectancy, accelerated depreciation expenses the cost at higher values during the earlier accounting periods and at a lower amount towards the last half of the asset’s life expectancy.

The Definition of Fixed Assets

Any tangible item not consumed within one accounting cycle (typically a year) and providing long term utility is referred to as a Fixed Asset.  Traditional images include manufacturing equipment, tools, transportation vehicles, buildings and utility related systems (sewage systems, power grids, power plants and dams).  In accounting, these assets are recorded to the balance sheet as ‘Fixed Assets’. 

Small Business Tax Depreciation – Section 179

Internal Revenue Code

The Internal Revenue Service sets the depreciation allowance based on the Code as promulgated by Congress.  The most commonly referenced section is 179.  This is a form of accelerated depreciation allowing the small business owner the opportunity to take a large expense deduction and reduce their tax obligation immediately. 

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Local Revenue Tax – The Business License

Business License

A business license is the tool used by local governments to monitor all businesses in their community.  It triggers at least two types of tax.  At a minimum a revenue and personal property tax is charged through this registration process.

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