Boost your financial efficiency and navigate the complexities of depreciation with confidence!
Discover the power of depreciation in the world of business and investments. Learn to leverage various depreciation methods - regular, bonus, and section 179 - to optimize your tax deductions. Uncover the nuances of asset management, including when depreciation starts and how to handle asset sales. Simplify your financial records with a capitalization policy and make well-informed year-end decisions
Tune into this episode to learn all you need to know about depreciation and how it can make tax filing easier for your small business!
[00:00 - 07:47] Mastering Depreciation: Strategies for Business Asset Management
- Depreciation is a strategy to spread asset costs over time, useful for various businesses
- Choose regular depreciation (3 to 39 years), bonus depreciation (up to 80% upfront), or section 179 expensing (up to $1,160,000 in year one) based on assets and goals
- Depreciation applies to machinery and buildings but not personal items or land
- Bonus depreciation and section 179 allow front-loaded deductions; regular depreciation spreads deductions over time
[07:48 - 14:42] Timing, Sales, and Capitalization Strategies
- Depreciation is tied to being in business and placing an asset in service during the same year for deductions
- When selling a depreciated asset, the gain or loss is calculated using the sales price minus the asset's basis
- Taxable gains from selling depreciated assets are known as depreciation recapture and can impact business taxes
- Establishing a capitalization policy is crucial for effective asset management in every business
- Bonus depreciation and Section 179 expensing can be combined to offset income
[14:43 - 21:18] Simplifying Depreciation and Asset Management: Insights for Year-End Planning
- The IRS allows businesses to expense items under $2,500 immediately rather than depreciating them.
- Depreciation starts when assets are in service in an active business, and partial depreciation applies to assets used for both business and personal purposes
- Selling depreciated assets can result in taxable gains (depreciation recapture), requiring reporting on tax returns
- With year-end approaching, understanding depreciation options and capitalization policies aids informed decisions on asset purchases and deductions
Learn More: https://www.taxsavingspodcast.com/blog/what-is-depreciation-for-my-business-when-does-a-capitalization-policy-make-sense
Key Quotes
"Depreciation is essentially just a way of how do we write off an asset. We buy a new truck, we buy a new piece of equipment, we buy various things for our business, and how do we write it off? That's in the form of depreciation." - Mike Jesowshek
"Do not go out and buy things that you don't need simply for a tax deduction. That's a no-win situation for a business owner." Mike Jesowshek
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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast
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