Basis is a term used in computing gains and losses on the disposition of an asset. For any business owner or individual taxpayer it is important to understand what the Internal Revenue Service (IRS) is really seeking. What is your tax basis in an asset?
Tax depreciation is a form of depreciation used by the Internal Revenue Service to determine the amount of depreciation deduction on the tax return. There are several methods allowed by the code and depending on your business and/or industry the IRS has a schedule for the maximum amount allowed in the respective tax year.
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.