Depreciation and Section 179

A concept comparing regular depreciation to that which is allowed under the IRS code section 179, accelerated depreciation. Section 179 allows the maximum depreciation in order to reduce a tax obligation for the small business entrepreneur.

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.

What is a K-1?

A K-1 is a reporting tool to the Internal Revenue Service.  It is used by Partnerships, S-Corporations and Trusts to report the taxpayer’s share of income, deductions, and credits.  A K-1 is similar to Form W-2 or 1099 in that the information provided informs the taxpayer of what has been reported to the Internal Revenue Service.

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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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