Definition
Accelerated depreciation is an accounting method that allows businesses to depreciate assets more quickly than under the traditional straight-line method. This method allows businesses to write off the cost of an asset over a shorter period of time, resulting in larger deductions in the early years of the asset’s life.
Importance
Accelerated depreciation is an important tool for businesses to manage their taxes. By taking advantage of accelerated depreciation, businesses can reduce their taxable income in the early years of an asset’s life, resulting in lower taxes. This can help businesses save money and reinvest in their operations.
Example
For example, a business purchases a new piece of equipment for $10,000. Under the traditional straight-line method, the business would depreciate the asset over five years, resulting in a $2,000 deduction each year. However, if the business uses accelerated depreciation, it can depreciate the asset over three years, resulting in a $3,333 deduction each year.
Table
- Straight-Line Depreciation Accelerated Depreciation
- Cost of Asset $10,000 $10,000
- Depreciation Period 5 years 3 years
- Annual Deduction $2,000 $3,333
Key Takeaways
- Accelerated depreciation is an accounting method that allows businesses to depreciate assets more quickly than under the traditional straight-line method.
- Accelerated depreciation can help businesses reduce their taxable income in the early years of an asset’s life, resulting in lower taxes.
- Accelerated depreciation can help businesses save money and reinvest in their operations.
Conclusion
Accelerated depreciation is an important tool for businesses to manage their taxes. By taking advantage of accelerated depreciation, businesses can reduce their taxable income in the early years of an asset’s life, resulting in lower taxes. This can help businesses save money and reinvest in their operations.
