Maximizing Tax Savings with Depreciation and Capitalization Policies for Small Business Owners
Small Business Tax Savings Podcast
Understanding Depreciation and Asset Sales in Business Taxation
Exploring the nuances of depreciation for business assets, from bonus depreciation to recapture implications, and how it influences taxable gains or losses through practical examples.
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
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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